CBI Holding Company Case Study

862 Words 4 Pages
Register to read the introduction… 8 calls for a CPA firm to form and document policies and procedures for accepting new clients as well as the continuation of current clients (AICPA, SQCS 8-.27-.36). The standard underscores the importance of how the client’s reputation could affect the reliability of their financial records and statements thereby affecting the CPA firm’s reputation. A CPA firm needs to consider the risks involved: the client’s risk, the audit’s risk, and its own personal risk (Kerr et al., 2007). All of these factors can be assessed with creation of a client evaluation system which E&Y either didn’t have or didn’t adhere to.
An evaluation system should provide the CPA firm with a reasonable
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If the board executives had known of the discrepancies it is reasonable to say they would have fixed the problems internally and restated those financial statements affected by the discrepancies. TCW would have a valid argument to take control of CBI through the restatement of these financials. E&Y’s lack of client acceptance standards and internal quality controls led to CBI filing bankruptcy, destroying itself, CBI, and TCW all at once.

AICPA (American Institute of CPAs). SQCS No. 8-.27-.36. Retrieved October 12, 2014, from the AICPA QC database.
Allen, R. D., Hermanson, D. R., Kozloski, T. M., & Ramsay, R. J. (2006). Auditor risk assessment: Insights from the academic literature. Accounting Horizons, 20(2), 157-177. Retrieved October 10, 2014.
Kerr, S. G., Grupe, F. H., Jooste, S., & Vreeland, J. M. (2007). A case-based approach to the evaluation of new audit clients. Journal of Computer Information Systems, 47(4), 19-27. Retrieved October 10, 2014 from EBSCOHOST.
Knapp, M.C. (2012). Contermporary auditing. (10th Edition). University of Oklahoma: Cengage Learning. ISBN:

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