they likely did not gain a sufficient understanding of the entity and its operations. . Merry-Go-Round, Part II. E&Y did not disclose to MGR the nature relationships with Rouse Co. and Swidler, and in this sense, E&Y acted unethically. But, it is difficult to determine whether these relationships caused E&Y to act unethically. Maybe, the relationship of E&Y with the landlord would affected its advises. Also, this relationship can be the reason that E&Y’s cost-cutting suggestions did no go farther. All these uncertainties point out the importance of independence and appearance of the audit. Even if E&Y acted ethically, this relationship appeared to be improper.
Going back to the relationship with Rouse Co., that could have caused E&Y to hesitate to suggest that the stores for which Rouse Co. was the landlord be closed for fear of losing business from Rouse Co. Its relationship with Swidler, could have made E&Y feel that it could not lose the engagement under any circumstances, therefore possibly explaining its apparently careless attitude towards the engagement. Question Chapter 2: Although it is possible for the big firms to be held to a higher standard, I think the Auditors should not show bias toward them. Auditors should use the same type of approach toward financial statements audits, regardless of the type of entity they are auditing. All firms should be held at the same high level standard, as it represents the central context in which auditors operate.
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- Spring '16
- Financial audit, E&Y, general standard