Assignment 2

Assignment 2

Peter Njovu

Graduate School of Business, The University of Zambia

GSB 5031: Finance for Managers

Dr Shelly

October 2nd, 2022.

Introduction

If the public's trust in the accounting report is violated, it loses value. Accounts-related

situations like the one involving Tierra Corporation happen frequently. All types of accountants,

including management accountants, tax accountants, auditors, and valuation specialists, are implicated

by the moral concerns they raise (Thibodeau, 2014).

In order to effectively and appropriately screen prospective clients, auditors must be able to

analyze lawsuit risk. Many accounting firms have already started vetting potential clients more

carefully and rejecting people who might have been accepted prior to the litigation upsurge (Dillard,

and Yuthas, 2017). The managing partner, Lee Tower, required new customer investigations and

approval in accordance with the quality control processes of Tammy Potter's business, Tower &

Tower, so she maintained her professionalism by bringing this out. She said that she would be open to

taking on the auditing work for Tierra Corporation. Even though the audit cost for the engagement

was expensive, Tammy followed the rules her company had established for vetting prospective

customers. The incident demonstrates that Tammy cared more about preserving her business's

reputation than she did about scoring lucrative contracts. She was resolved to follow protocol in

addition to asking Lee Tower, her supervisor, for permission. By also getting Edmond's permission to

perform the necessary research for the new client probe, Tammy Potter displayed even higher moral

character.

a. Accepting Tierra Corporation as an audit client

1. Lewis Edmond is a person of integrity, and based on his past, it is likely that he wouldn't act

unethically. Lewis Edmond, the chairman of the board of a regional civil organization, and his

business, Tierra Corporation, can also be trusted because of their good standing in the

community.

2. Tierra Corporation seems to be a successful, lucrative company that is committed to

expansion.

3. By auditing such a well-known client, Tierra Corporation will be able to collect a sizable

audit fee.
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4. Both Tierra Corporation's lender and attorney had high admiration for the business, and there

were no red flags in the company's Dun & Bradstreet report.

5. Auditors have a duty to present accurate and sincere reporting. It was evident that Tammy

Potter was committed to reporting audit results honestly when she voiced her concerns over

the fabrication from the last audit report. Contrary to what Bill Turner did, who failed to

expose Edmond's fraud despite spotting it in his audit findings a decade prior,

6. Tammy Potter showed she wasn't fooled by Edmond's reputation in the neighborhood. or the

magnitude of Tierra Corporation by discovering the deceit.

7. Using an evidence-based approach is a systematic way to ensure that audit conclusions are

repeatable and credible. While accepting new clients, performing audits, and reporting

findings, Tammy followed established procedures and SOPs.

8. By not withholding information and granting Tammy Potter the autonomy to carry out the

audit, Edmond showed some maturity. The investigation was done impartially and without his

intervention thanks to the transparency. As he matured, Edmond came to understand that

audits are performed for the benefit of the system, as seen by his desire to assist with the

inquiry before the audit.

b. Not accepting Tierra Corporation as an audit client

1. Tammy Porter has joined the regional CIA company Tower & Tower as a new partner and

has assumed leadership of one of the board of directors of a small civic group. Porter should

not suggest that Tower & Tower accept the audit proposal in light of the significant

professional responsibility profile.

2. Citing the earlier IRS audit, Bill Turner, Edmond's former tax accountant, had a negative

assessment of Tierra Corporation. Turner is familiar with Edmond's tax avoidance strategies

because he was formerly his tax accountant.

3. A civil fraud penalty was imposed on Edmond, demonstrating his ethical business practices.

His main objective in the audit was to get a recommendation for obtaining a substantial

amount of additional funding to acquire a separate company. Instead of supporting his

internal systems for ongoing improvement, the audit was carried out for financial advantage.

Finding management fraud is extremely difficult, even with amateur auditors or simple

auditing methods. Edmond has a track record of corruption, thus he might utilize his fortune

to gain the community's trust and respect.

c. Conclusion

Tammy recognized potential instances of fraud after looking over the prospective client's financial

records from the prior years. Tammy did an excellent job of examining Tierra Corporation's

accounting practices. However, Edmond showed management's dedication to GAAP (Decker, Ray,&

Kizirian, 2016). Although Edmond enjoys a high level of esteem in society, his past tax evasion

behavior and the subsequent civil fraud penalty he paid demonstrate that he cannot be relied upon to

provide accurate information for the audit proposal. It is therefore preferable for Tierra Corporation to

reject Edmond's request for an audit.

References

Blay, A. D., Sneathen Jr, L. D., & Kizirian, T. (2007). The effects of fraud and going ‐concern risk on

auditors' assessments of the risk of material misstatement and resulting audit procedures.

International Journal of Auditing, 11(3), 149-163.

Decker, J., Ray, R., & Kizirian, T. (2016). The Auditor’s Road Map For Client Acceptance. Journal

of Business Case Studies (JBCS), 12(3), 99-102.

Dillard, J. and Yuthas, K. (2017), “ethical audit decisions: a structuration perspective”, paper

presented at interdisciplinary perspectives on accounting conference on July 7.

Thibodeau, J. C. (2014). Auditing and accounting cases. McGraw-Hill/Irwin