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from Jennifer, he became nervous and decided to change CPA firm. Such behavior proved bad management of the firm, existence of misleading accounting, shoddy auditing and outright fraud (The Economist, 2002). “At the heart of these audit failures lies a set of business relationships that are bedeviled by perverse incentives and conflicts of interest” (The Economist, 2002).Usually the auditing firm should be selected by the shareholders, but most of the time they are appointed by the company’s management. Such selection affects the quality of the audit. From the beginning it is obvious that the Fantastic Development hired an external auditors to senior management positions or as internal auditors. Otherwise they will not hide the
4CONFLICTING CLIENTS financial statements. As a result the Coshocton National Bank would not select Fantastic Development for confirmation on loan valuation. In order to avoid the situation of Enron and Arthur Andersen’s fault “the most radical change would be to take responsibility for audits away from private accounting firms altogether and give it, lock, stock and barrel, to the government” (The Economist, 2002). The government will try to escape the conflict of interests and will audit as an independent expert. Tom Ward is not allowed to change the auditing company, unless Jennifer was not selected by the government to audit the Fantastic Development. The auditors have rights to ask questions, to request additional information and papers, if necessary. Jennifer was doing her job by addressing the case and company’s miraculous turnaround to Tom Ward. Instead of being unhelpful and pretending of not understanding the request and moreover engaging different firm, he should have acted calm and explain the situation. However we all know the conflict of interest took place here and there is nothing he could say or do to avoid the punishment. If Jennifer continues to search for the fraud of the company, she