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During an audit, the Lead Auditor noted the ratio of net credit sales to average accounts receivable is outside industry standards and alerted the client. The client concluded and emphasized that in his opinion the receivables were collectable.
As a result of these inquiries, no additional testing of receivables was done. The work-papers documented the Lead Auditor's concerns about the receivables and the conversations with the client. The Lead Auditor informed the CPA Firm’s partners of her audit concerns during a review of her work. The CPA Firm’s partners stated the percentage is about the same as the prior two years and the client responded the same way. They dismissed the Lead Auditor's concerns.
Months later; an embezzlement scheme was uncovered at the company. The client sued the CPA Firm, arguing the Lead Auditor should have expanded her review procedures based on the analytical review results.
How does this scenario relate to Objectivity, Competence, Supervision, and Subordination?
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