LO B-2 B55.Competition and Audit Proposals. Accounting firms are often asked to present “proposals” to companies’ to boards of directors. These proposals are comprehensive booklets, accompanied by oral presentations, telling about the firm’s personnel, technology, special qualification and expertise in the hope of convincing the board to award the work to the firm.

Kourtney Dena as a new job as a staff assistant to Selby Michael, chairman of the board of Granof Grain Company. The company has policy of engaging new auditors every seven years. The board will hear oral proposals from 12 accounting firms. This is the second day of the three day meeting. Dena’s job is to help evaluate the proposals. During the first day of meeting, the proposal presented by Eden, Benjamin and Block was clearly the best.

At the end of the day, Dena sees Michael’s staff chief slip a copy of Eden, Benjamin and Block’s written proposal into an envelope. He then tells Dena to take it to a friend who works for Hunt and Hunt, a public accounting firm scheduled to make it presentation tomorrow, saying, “ I told him we’d let him glance at the best proposal.” Michael is absent from the meeting and will not return for two hours.

Required:

What should Dena do? What should CPA Hunt do if he receives the Eden, Benjamin and Block proposal, assuming he has time to modify the Hunt and Hunt proposal before tomorrow’s presentation?

 

 

LO B-2 B56. Engagement Timekeeping Records. A time budget is always prepared for audit engagements. Numbers of hours are estimated for various segments of the work, for example, internal control evaluation, cash, inventory and report review. Audit supervisors expect the work segments to be completed “within budget” and evaluate staff accountants’ performance in part on the ability to perform audit work efficiently within budget.

Jessica Sara is an audit manager who has worked hard to get promoted. She hopes to become a partner in two or three years. Finishing audits on time is heavily weighed on her performance evaluation. She assigned the cash audit work to Paul Ed, who has worked for the firm for 10 months. Ed hopes to get a promotion and salary raise this year. Twenty hours were budgeted for the cash work. Ed is efficient, but it took 30 hours to finish because the company had added seven new bank accounts. Ed was worried about his performance evaluation, so he recorded 20 hours for the cash work and put the other 10 hours under the internal control evaluation budget.

Required:

What do you think about Ed’s resolution of his problem? Was his action a form of lying? What would you think of his action if the internal control evaluation work was presently under budget because it was not yet complete and another assistant was assigned to finish that work segment later?