See the “CBI Holding Company, Inc.” case for this question.
1-Most of Judge Lifland’s criticism of E&Y focused on the firm’s audit procedures for CBI’s accounts payable. Generally, what is the primary audit objective for accounts payable? Do you believe that E&Y’s two principal audit tests for CBI’s accounts payable would have accomplished that objective if those tests had been properly applied? Why or why not?
2-Do you believe that the E&Y auditors should have used confirmations in auditing CBI’s year-end accounts payable? Defend your answer. Briefly explain the differing audit objectives related to accounts receivable and accounts payable confirmation procedures and the key differences in how these procedures are applied.
3-In early 1994, E&Y officials discovered that the CBI auditors had failed to determine the true nature of the “advances” they had uncovered during the 1992 and 1993 audits. In your view, did E&Y have an obligation to inform CBI management of this oversight prior to seeking the “reaudit” engagement? More generally, does an auditor have a responsibility to inform client management of mistakes or oversights made on earlier audits?
4-Under what circumstances, if any, should an audit engagement partner acquiesce to a client’s request to remove a member of the audit engagement team?
5- E&Y officials believed that the CBI audits were high-risk engagements. Under what general circumstances should an audit firm choose not to accept a high-risk engagement?