North Face Case Study

912 Words4 Pages
The North Face, Inc. Questions 1. Should auditors insist that their clients accept all proposed audit adjustments, even those that have an “immaterial” effect on the given financial statements? Defend your answer. Auditors should not require their clients to accept and correct all the adjustments. In the audit process, auditors are easily to hold different opinions with management over financial statements; especially over the accounts require personal judgments. But auditors are not always right, and their clients may disagree with the misstatements detected by auditors. According to AU §312.43, after timely communication between auditors and management, management has the right to disagree with the audit adjustment. Also, in Auditing Standard No.14 of PCAOB, it says the communication just gives the management an opportunity to correct misstatements. However, auditors should be more suspicious of these uncorrected misstatements, because there may be a sign of fraud. Thus, PCAOB requires auditors to understand why their clients refuse to make corrections, and evaluate the effect of the uncorrected misstatements, both individually and in combination with relevant accounts. 2. Should auditors take explicit measures to prevent their clients from discovering or becoming aware of the materiality thresholds used on individual audit engagements? Would it be feasible for auditors to conceal this information from their audit clients? According to PACOB Standard No.11, once the materiality level has been identified, the audit timing, nature and extent has been decided. Auditors will follow the planning to conduct substantive produces to issue a reasonable assurance report. Auditors should not reveal materiality thresholds to their clients, in case that the clients would make use of the thresholds to do fraud. In the North Face case, because Christopher Crawford,
Open Document