Question

Which of the following factors most likely would cause a CPA to decide not to accept a new audit engagement?

A. The CPA's lack of understanding of the prospective client's internal auditor's computer-assisted audit techniques.
B. Management's disregard of its responsibility to maintain an adequate control environment.
C. The CPA's inability to determine whether related party transactions were consummated on terms equivalent to arm's-length transactions.
D. Management's refusal to permit the CPA to perform substantive procedures before the year-end.

Answer 1

Management's refusal to permit the CPA to perform substantive procedures before the year-end can cause a CPA to decide not to accept a new audit engagement. This refusal may hinder the CPA's ability to gather sufficient evidence, provide reasonable assurance, and detect material misstatements or fraud.

Step-by-step explanation:

When a CPA (Certified Public Accountant) considers whether to accept a new audit engagement, there are several factors that they take into account. One of these factors is management's refusal to permit the CPA to perform substantive procedures before the year-end. This means that if management does not allow the CPA to conduct necessary tests and examinations of the client's financial records and transactions, it could raise concerns about transparency and the accuracy of the financial statements.

By not allowing the CPA to perform substantive procedures before the year-end, management may be impeding the CPA's ability to gather sufficient evidence to form an opinion on the financial statements. This could hinder the CPA's ability to provide reasonable assurance regarding the accuracy and fairness of the financial statements to the intended users.

Furthermore, without the opportunity to perform substantive procedures before the year-end, the CPA may be at a higher risk of encountering material misstatements or fraud that could go undetected. This could compromise the integrity of the audit process and raise concerns about the CPA's independence and objectivity.