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1.1 Professional skepticism refers to a questioning mindset that an auditor should have during
the evaluation of the evidence. The auditor should plan and perform an audit recognizing that
circumstances may exist that cause the financial statements to be misstated. It implies that the
auditor should always maintain an independent and objective viewpoint to ensure the
reliability of the provided financial information in its analysis.
1.2 The first example when Will applied professional skepticism happened when he was
uncomfortable continuing the engagement when he found out that the point of contact with
the client was his good friend’s wife.
Another example was described when Will did not find a bank deposit of one of the cash
payments. The decision that Will made was to go to the point of contact with the client – Jess
to further investigate the issue. Further, when Jess provided a reasonable explanation, Will
still wanted to ensure the validity of the check. He found that the ink was a different color on
the envelope and in the recipient's book. In addition, the bill in the envelope was from 2006,
while the payment dated back to 2005. Despite the personal relationship with a representative
of the client, Will shared the evidence with his supervisor.
1.3 Firstly, Will’s supervisor Vince disregarded his concerns regarding the continuance of the
engagement with the friend’s wife as a representative of the client.
Further, it is mentioned previous experience that Will had when performing audits. The case
describes that Will was finding missing signatures or documents, however, his concerns were
pushed away, as the documents were always found at the end and the mistakes were always
described as unintentional and immaterial.
In case Will does not exercise professional skepticism, he could ignore the first signs of
falsified evidence, as he was always told that time management is very important.
2.1 The auditor must maintain independence in mental attitude in all matters regarding the
audit. An independent auditor plans, conducts and reports the results of an audit in
accordance with generally accepted auditing standards. Independence can be achieved by
being without bias with respect to the client. To be independent the auditor must be
intellectually honest, to be recognized as independent, he/she must be free from any
obligation or interest to the client, its management, or its owners.
2.2 The auditor should be independent in facts and his/her appearance. Independence in
appearance is described as the avoidance of facts or circumstances that an informed third
party would conclude as a breach of professional skepticism in auditor/firm mindset and
attitude.
2.3 The Code of Professional Conduct does not directly address the issue of personal client
relationships. However, 1.100 addresses Integrity and Objectivity, where it is mentioned that
in the performance of any professional service, a member shall maintain objectivity and
integrity, be free of conflict of interest, and shall not knowingly misrepresent facts.
2.4 Independence in appearance refers to whether a third party would consider an auditor
independent. While independence of mind refers to the application of objectivity and
professional skepticism during the audit.
2.5 In this case, Will had a lot of obstacles, such as a personal relationship with a
representative on the client’s side, as well as time constraints. However, those circumstances
did not impair Will’s independence in analyzing the evidence. Will continued to critically
think and question the actions of the person who was close to him. It allowed Will to uncover
fraudulent activities that his friend’s wife was doing at the client’s company.
2.6 I believe that many factors can influence an auditor’s independence. In my opinion, the
factor that has the greatest role in determining an auditor’s independence is the presence of
safeguards at the firm level. Safeguards are actions that are put in place in order to mitigate
threats to the independence of the auditor. Some of the examples can include policies,
procedures, and ethical guidelines.
2.7 In order to promote independence, firms can invest in preventative and operational
safeguards. For example, preventative safeguards in this context could be investing in the
education and training of employees in order to emphasize the importance of independence in
this industry. An example of an operational safeguard could be a rotation of clients between
employees. That could reduce the threat of familiarity and possible personal bonds.
3. One of the evidence in support of Jess not being guilty is a personal relationship with her,
the fact that Will knew her as a hardworking, responsible woman. In addition, Jess provided
an explanation of where the missing money was – the deposit had fallen in between two
cabinets in the vault and was deposited the next day with other deposits. In addition, the full
amount was presented to Will.
The type of evidence that is presented in favor of Jess is documentary evidence and oral
evidence. Will had found that the money that was missing from the bank statement was
recorded the next day and Jess provided a reasonable explanation regarding the issue at hand.
However, Will found evidence against Jess’s explanation – the ink on the deposit slip and in
the recipient's book was different. Moreover, the bills in the envelope dated from 2006, while
the deposit was done in 2005.
This evidence is a part of documentary and physical evidence. Differences in the color of the
ink were signaling a falsification of documents. In addition, the fact that bills from 2006 were
used in the transaction made in 2005 is a part of the physical evidence of fraud.
4. It is mentioned in the case, that Jess and another assistant clerk were responsible for
verifying the recipient book, preparing a voucher to send to the sheriff’s office to update its
computer for all tickets paid that day, preparing the deposit slip for any cash and checks, and
making the deposit. This is an indication of a lack of segregation of duties. To improve
controls of this firm, different employees should be responsible for verifying the recipient
books, preparing vouchers, and making deposits. Moreover, the firm should implement
regular reconciliation of their documentation.
5. Firstly, auditors should determine whether the materiality of the evidence found is higher
or lower than 5000$. Further, if the materiality of fraudulent activities is less than 5000$, the
evidence should be brought up to the management above to determine further steps. If the
materiality of fraudulent activities is higher than 5000$, auditors should determine the effect
on the financial statements and the audit reports. Moreover, auditors should report directly to
the audit committee and advise the client to seek legal counsel. Lastly, auditors should
provide examples of programs and controls the client can implement to prevent and detect
fraud in the future.
6. Will faced pressure to pursue the investigation from his personal relationship with the
person who committed fraud. Furthermore, Will lived in a small town, and he did not want to
get a reputation as a person who accused innocent people. In addition, Will had time
constraints, due to the fact that he was working two jobs. Moreover, it was Will’s first case
that he did by himself, without his supervisor. It was putting pressure on Will to do his best
job, without seeking constant reassurance from his supervisor. Another situation that put
pressure on Will, is that his child had fallen sick right after he uncovered fraud.
In general, auditors face a lot of pressure while doing their job. For example, auditors should
always apply professional skepticism while doing the audit, however, auditors regularly work
very closely with clients for a long period of time. This puts pressure on auditors in the sense,
that they should balance trust with clients, and at the same time be independent and skeptical.
Moreover, auditors can face pressure from the firm regarding budget and time constraints,
which can limit the ability of auditors to provide their best services. This can also lead to
limiting auditors in the detection of complex fraud schemes. In addition, a lot of auditors are
worried about the risks of litigation, which can put pressure on auditors to not peruse certain
evidence that during the first steps is not seen as enough to form allegations.
7. Alternative 1: Confront Jess.
Confronting Jess in case she is innocent can lead to a damaged relationship between Will and
his friend, as well as some reputational concerns. In case, if Jess is guilty, it may allow her to
cover her tracks before Will can get more evidence.
Alternative 2: Seek guidance from the management or colleagues.
Management and colleagues can provide relevant insights from their perceptive. In case, Jess
is innocent, it may damage Will’s reputation as being incompetent and not looking deep
enough. If Jess is guilty it would lead to the same outcome as described in the case, such as
Jess’s arrest.
Alternative 3: Gather more evidence.
Whether Jess is guilty or not, this alternative will not lead to negative consequences. If there
is more evidence, supporting the claim that Jess is guilty, Will would report to management
and take further necessary actions to prevent fraud from happening. If there is not enough
evidence, then the case will be closed, and Will will continue analyzing other documents.