Beckham & Beckham withdrew from the audit of one of their clients (Loops Co.) af

Question

Beckham & Beckham withdrew from the audit of one of their clients (Loops Co.) after the partner in charge of the audit (Helen Brown, CPA) discovered that the company was overstating their revenue by recording ficticious sales.

Two weeks later, a partner at another CPA firm (Fred White) contacted Helen Brown. Fred explained that he had been retained by Loops Co. to perform their audit. He asked Helen why Beckham & Beckham withdrew from the audit. Helen told him the truth.

Did Helen violate professional ethics when she told Fred about the fraud she found? Why are why not? If you answer 'yes', cite the relevant rule.

Explanation / Answer

In this Case Helen Brown, the partner of Beckham & Beckham withdrew from the audit of theri clains i.e Loops Co after discovering the truth that the Loops Co overstated their profit by overstating theri revenue by recording Ficticious Sales: It is the wish of the audit firm to withdraw from the audit by intimating to the client about their withdrawal by mentioning the reason.

Another auditor of Bechmam and Beckham retained by the client to perform audit. Actually, it is the professional dutyof the new auditor to enquire from previous auditor about reasons for their withdrawal. Here, Helen Brown, CPA told the truth to the new auditor Fred White. Helen has performed his duty by disclosing the truth, here there is no question of violation of professional ethics. It is his professional duty to disclose the fact or truth to the new auditor.

Here, the professional ethics is that new auditor shoud enquire from previous auditor to know the reasos for what they are withdrawn from their duty and at the same time it is the duty of the previous auditor to tell the truth i.e to tell the resons for what they have withdrwan. Until the new auditro get the information from the precedure auditor, he shoudl not accetp his engagement as per AU 315

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