1. In 300 words, critically evaluate the judgments made by Grace as the senior by using the
KPMG Professional Judgment Framework.
Using the KPMG Professional Judgment Framework, Grace made several errors in judgment
that go against what the KPMG Professional Judgment Framework teaches. The framework
contains 5 steps: define the issue clearly, identify and consider alternatives, gather and evaluate
information, reach a well-reasoned conclusion, and finally articulate and document your
rationale. Grace skipped many of these steps. When she accepted the accounting for new
equipment without having the proper documents, she ignored the need to collect enough
evidence. She also failed to exercise professional skepticism, a crucial trait of an auditor. Grace
blindly trusted the client’s explanation for missing invoices or estimated expenses, showing
confirmation bias and believing information that fit her expectations instead of verifying the facts.
Her decision to rely on last year’s work papers also shows anchoring, meaning she depended
too much on old information instead of forming her own view. Grace admitted that her team
pressured her to finish quickly, which led her to give in to group thinking rather than stand by her
responsibility as a senior auditor. The KPMG framework emphasizes that a questioning attitude
and independence are necessary for good professional judgment. Grace’s actions show how
stress and tight deadlines can cloud ethical decision making. Instead of protecting the public
interest and maintaining audit quality, she allowed convenience to guide her choices.
2. Did Grace violate any rules of conduct in the AICPA Code? Explain in 300 words.
Grace’s conduct went against key parts of the AICPA Code of Professional Conduct, especially
the principles of Due Care, Integrity, and Objectivity. Due Care means acting carefully and
competently and using sound judgment. By approving transactions with missing records and not
verifying the client’s estimates, Grace failed to meet that duty. She also violated the General
Standards Rule, which requires auditors to gather enough evidence before concluding. Her
behavior showed a lack of independence and objectivity because she let both her client and her
team influence her decisions. The AICPA Code states that members must not let bias or outside
pressure affect their professional judgment. Grace’s willingness to trust the client’s word created
an undue influence threat. Relying on last year’s numbers added a self-review and familiarity
threat. These are clear risks to independence that she did not address or safeguard against.
Even if her intentions were not bad, the outcome could harm the credibility of the financial
statements. Her actions go against the CPA’s duty to serve the public interest and maintain
confidence in the profession. Auditors need to be skeptical, even when deadlines and pressure
make it difficult. By prioritizing efficiency over accuracy, Grace ignored the ethical standards that
protect the public and the firm’s reputation.
3. Does Rick have any ethical obligations in this matter? What should he do about
signing off on the audit and why? Explain in 300 words.
As the review partner, Rick has an ethical duty to make sure the audit meets professional and
legal standards. The AICPA Code says that CPAs must always act in the public interest and
maintain integrity and objectivity. Since Grace’s work shows weak judgment and poor
documentation, Rick should not sign off on the audit until the problems are fixed. Rick needs to
order more testing on the areas that raised questions, like the equipment purchases, the
accrued expenses, and the allowance for uncollectibles. If he approves the report as it is, he
would be failing to exercise Due Care. That could make the audit misleading and harm the
credibility of the firm. He should also deal with the team pressure Grace faced by setting a
stronger tone that values ethics and independence over meeting a deadline. Rick’s first step
should be to document all the findings and discuss them with both Grace and the audit
committee. If needed, he should delay the audit completion or provide Grace with more
supervision and guidance. His main obligation is to protect the public and uphold the standards
of the profession, not to satisfy the client or meet deadlines. Signing the audit without fixing
these issues would be an ethical failure and could damage the firm’s reputation for honesty and
fairness.