Phar-Mor, Inc

1) Some of the members of Phar-Mors financial management team were former auditors
a) Why would a company want to hire a member of its external audit team?
A company may want to hire a member of its audit teams for a number of reasons: First the
auditor is accustomed with the company, second the auditors usually have experience with a
number of financial matters, and lastly management has had the chance to work closely with the
auditor and might has developed a strong relationship with them.
(b) Assuming a firm has hired its former auditors, would this affect the independence of the
existing external auditors?
When former auditors become clients, there is always the risk that independence can be
compromised. Former auditors maybe friends with existing auditors from all the years they
worked on the same team together.
Also, the current auditors likely believe the former auditor
has high integrity and wouldnt do anything to mislead them.
Because of that the current auditors
may rely too much on the fact that the former auditor isnt the type to commit to fraud.
Lastly,
because the former auditor will be very familiar with the audit approach, the probability of
successfully hiding an accounting fraud may increase.
c) What would you do if you were offered a job while the audit is still in progress?
If I was offered a job while the audit is still in progress I will turn it down. Their needs to be
independence while doing an audit if I would accept the job there wont be any independence in
the audit.
(d) Is it appropriate for auditors to trust executives of a client?
No it isnt appropriate for auditors to trust executives of a client. Auditors should maintain
healthy professional skepticism. Professional skepticism is an attitude that includes a questioning
mind and a critical assessment of audit evidence. he auditor shouldnt assume that management
is dishonest nor assumes undisputed honesty. The auditor should not think because they believe
that management is honest that the evidence is believable. So, an audit team must objectively
evaluate audit evidence.
2 (a) What factors in the auditor-client relationship can put the client in a more powerful
position than the auditor?
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