Situations for discussion

Controller as Auditor.

The chairman of the board of ABC Ltd. Proposed that the board hire as controller a CPA who had been the manager on the corporation’s audit performed by a firm of independent accountants. The chairman thought that hiring this person would make the annual audit unnecessary and would consequently result in saving the professional fee paid to the auditors. The chairman proposed to give this new controller a full staff to conduct such investigations of accounting and operating data as necessary. Evaluate this proposal.

Auditor as Guarantor.

Your neighbour invited you to lunch yesterday. Sure enough, it was no “free lunch” because he wanted to discuss the annual report of the AAA Corporation. He owns AAA stock and just received the annual report. He says: “Price Waterhouse prepared the audited financial statements and gave an unqualified opinion, so my investment must be safe.”

What misconceptions does your neighbour seem to have about the auditor’s role with respect to AAA Corporation?