Assignment 2: BytezHarry has been with Zayn & Associates CPAs for a little over six months now and in his sixmonth evaluation he was deemed â€œsatisfactory.â€ Harry graduated with honors and was used tobeing â€œexceptional.â€ But, because the comments were positive, he figured that he should besatisfied. However, the firm just lost a major client, and there are questions as to whether theremight be some layoffs. In fact, one audit senior was joking at lunch the other day about having”fewer of the staff auditors congesting the cubicles” if the firm doesnâ€™t pick up some new workâ€”but it’s hard to read him since, while he is very intelligent, he has a sick sense of humor and asomewhat negative slant on life.One comment in Harryâ€™s evaluation was that several of his in-charge seniors thought that whilehis work was always thorough and conscientious, he was often so thorough as to spend too muchtime worrying about things that just don’t matter that much. During his review, he was remindedthat while it is true that an auditorâ€™s first responsibility is to obtain sufficient appropriateevidence as opposed to meeting the budget, he should try to start considering materiality more.Reading the comments about the budget, Harry rolled his eyesâ€”it seems that making the budgetis extremely important to advancement in the firm.Harry is currently working on the audit of Bytez which prides itself on having the culture of a hipstart-up. Bytez designs and sells software, including its relatively new Globl operating system.Globl has a much smaller following than Windows, but the number of companies adopting Globlhas increased each year. Globl is shaping up to become a viable competitor.One night Harry goes up to the 5th floor, the same floor as the chief financial officerâ€™s office, toreview some personnel files for payroll testing. Since itâ€™s late, the 5th floor was empty save forHarry and the CFO. The CFO has one of those voices that carries, especially since his office doorwas open, and Harry overheard him talking on the telephone. As best Harry could hear, itsounded like the call was from an employee at Lingo that the CFO knew; Lingo is a majorcustomer. It was clear that the conversation was about the $10,000 receivable confirmation Harrymailed and that Lingo had some sort of disagreement with respect to the amount. Harry couldn’ttell for sure, but he thought that he heard the CFO say, “Listen, these little differences happenevery year, and we straighten things out. If you send it back as is right now we’ll straighten it outafter the audit. In fact, sign it, and I’ll give you the new version 3.5 software.”Harry considered calling the in-charge senior who was out of town on another job for the nextday or two but decided to give this some thought before discussing it with anyone. Three daysafter overhearing the conversation, the confirmation from Lingo came back with no exceptionsnoted.Harry knows that since confirmations are normally considered very reliable, the $10,000 amountwill be accepted as audited without any further investigation. Total Accounts Receivables at yearend is over $1,000,000, and income for the year is over $3,000,000. Performance materiality forA/R has been preliminarily set at $40,000. Because A/R is still in the process of being audited,Harry is unsure if other misstatements have been found.Harry eventually brings up the overheard conversation with the in-charge senior. She suggestedreviewing the documents relating to the Lingo saleâ€”the Lingo purchase order, the sales invoice,etc.â€”to make certain that there is nothing “wrong” there. She also suggested that reviewing anycorrespondence between the two companies to see if any dispute is apparent.After doing this, everything seemed in order. She then said, â€œWell, let’s just keep our eyes openand for certain just keep the confirmation in the working papers. Don’t document anything elseon your other work related to this.â€Based on the case above, answer the following questions:Why do you think Harry waited to discuss the overheard conversation with his in-charge senior?What other courses of action could Harry have taken instead? For each course of action youidentify, discuss factors that would influence the decision to choose or not choose that course ofaction (e.g., personal standards, societal norms, professional standards, etc.) and the possibleeffects of choosing that course of action. Given the other options, do you think Harry chose thebest course of action?Must an auditor document every procedure during an audit? Was it proper to only save theconfirmation? Would you feel a need to take this matter further? If so, what would you do?
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