Question
Romello Accounting LLP is a small CPA firm consisting of three partners and seven otherprofessionalstaff. The firm offers full attestation and assurance services. Most of
Romello Accounting LLP is a small CPA firm consisting of three partners and seven otherprofessionalstaff. The firm offers full attestation and assurance services. Most of the work is for small and medium-sized nonpublic companies. The firm is registered with the PCAOB and does audits of about 30 penny stock or pink sheet companies and broker-dealers each year.
Tony Romello, the managing partner of the firm, has been the review partner on all audits for the last several years. Unfortunately, Tony encountered major health concerns in the last month and will not be available for the upcoming busy season. Michelle Thompson and Max King, the two remaining partners, are discussing staffing during the busy season.
I am sorry that Tony is so ill, but I am concerned about our staff needs over the next three months. With two senior auditors and five staff auditors, we are all going to be very busy. I guess it is too late to hire experienced staff and get themtrainedquickly, Michelle stated.
Dont forget that we will need a review partner, Max mused. Hey, I could be the review partner for your audits and you can be review partner on my audits.
I almost forgot that, Michelle said. But dont we need to get a review partner who hasntworked onthe audits the lasttwoyears? That would exclude both of us, since we are switching off audits every five years. . . . Hey, maybe we can get Tom Mullins, CPA, to be our review partner on a contract basis?
Max immediately objected. You know that, as a retired Big Four audit partner, he would eat up our slim profits with his contract rate. Lets just make do this year and start planning to have a new partner by this time next year.
We cant do that, Michelle countered. When we have the PCAOB inspections, we will get penalized. We would also be cited in our peer reviews. No, no, Im not comfortable thinking of not having areviewpartner. Also, without Tony this year, you and I will be busy supervising the staff without the added responsibilities of being review partner.
Oh brother, you are such a rule follower!
Questions
Consider the staffing ofauditsin responding to the following questions.
- 1) Identify the stakeholders of audits and their interests. Is there a difference between stakeholders and interests of public versus nonpublic companies?
- 2) What are a firms considerations in having review partners? Does it really matter from a professional judgment perspective whether review partners rotate off after a prescribed number ofyears? Explain.
- 3)AssumeMaxconvincesMichelletolethimserveasthereviewpartnerforallauditsandMichellewillserveastheengagementpartneronallaudits.Doyouseeanyproblemswiththisapproachfromanethicalperspective?
- Please answer in detail and also highlight the ethical issues in this particular case.
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