Case 2.

12

1. The type of professional service engagement assigned was a consulting service. Per
the AICPA professional standards, consulting services are professional services that
employs the practitioner’s technical skills, education, observations, experiences, and
knowledge of the consulting process. Consulting services may include advisory
services, implementations, transaction services, staff and support services. The
applicable professional standards for consulting engagements are the Statements on
Standards of Consulting Services issued by the AICPA Management Consulting
Services Executive Committee.

2. The main audit objective for one of the teams was to confirm “existence” assertion
for the inventory. The audit procedure applied was to perform test counts during a
physical inventory observation. During the physical observation of inventory they
also assessed the valuation and ownership assertion. Katelyn Light and her team
were also focused on existence, valuation, and ownership assertions but Katelyn’s
team was no addressing the assertions as independent auditors. Katelyn’s team were
surrogates for their firm’s audit client. Katelyn and her team were serving as
forensic investigator, which require more evidence than an audit. Katelyn’s team
was also evaluating the internal controls.

3. Audit firms can sometimes rely on audit procedures performed by other audit firms.
When deciding whether or not to rely on the audit procedures performed by another
audit firm, the firm needs to consider a few factors. The most important factors to
consider are professional competence and independence. The main or principal
auditor also needs to consider these factors when deciding whether or not to
mention the component auditor in the audit report.

4. Weaknesses in PHC’s inventory-taking procedures:

a. The company’s decision to continue shipping operations during the physical

inventory observation/count. Shipping operations should be suspended when
the inventory is being counted.
b. Instructions to the team were inadequate according to Katelyn’s
observations.
c. Poor organization of the inventory in the toxic section.
d. Lack of familiarity from the team for some of the items counted.
e. Lack of cooperation with the audit team from PHC employees.
f. Differences in the pre-weights and re-weights of the storage bins.
These weaknesses affected the two teams of auditors. Auditors should have change
their nature and extent of their procedures.

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 5. In my opinion, I don’t believe it was appropriate for them not to be informed of the
complete nature of their assignment. Even if they were just entry level auditors, it is
very important to keep the staff informed or keep them in the loop of their
assignments. It is very important for auditors to have an understanding of different
things in the audit including the nature of an assignment.

6. In my opinion, Katelyn Light, Dani Morgan, and Tyler Christian had different
behaviors during the PHC assignment. Firstly, Katelyn Light managed certain
circumstances in a professional manner. She was very effective and considerate and
she also showed integrity while dealing with the storage bins debacle. Second, Dani
Morgan did a good job and completed her responsibilities during the inventory
observation but she had a temper during the meeting with Katelyn and Tyler and
that wasn’t professional at all, especially coming from a senior auditor. Finally,
Tyler Christian professionally differed with the superiors but he wasn’t very focused
during the inventory observation.

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