[SOLVED] Auditors commonly find themselves facing situations

Auditors commonly find themselves facing situations in which they must persuade client executives to do something they absolutely and resolutely do not want to do. When all else fails, auditors may be forced to use a tactic that clinical psychologists, marriage counselors, parents of toddlers, and other interpersonal experts typically frown upon; namely, the old-fashioned “if you don’t cooperate, I will punish you” threat. In the mid-1990s, an exasperated team of Grant Thornton auditors resorted to threatening a stubborn client executive to goad him into turning over key documents that had significant audit implications. The executive eventually capitulated and turned over the documents—which resulted in even more problems for the auditors.
The Brothers Greenberg
For decades, Jack Greenberg oversaw a successful wholesale meat company, a company that he eventually incorporated and named after himself. 1 Jack Greenberg, Inc., marketed a variety of meat, cheese, and other food products along the Eastern Seaboard of the United States from its Philadelphia headquarters. Jack Greenberg’s failing health in the early 1980s prompted him to place his two sons in charge of the company’s day-to-day operations. After their father’s death, the two brothers, Emanuel and Fred, became equal partners in the business. Emanuel assumed the title of company president, while Fred became the company’s vice president. The two brothers and their mother made up the company’s three-person board of directors. Several other members of the Greenberg family also worked in the business.
Similar to many family-owned and -operated businesses, Jack Greenberg, Inc. (JGI), did not place a heavy emphasis on internal control. Like their father, the two Greenberg brothers relied primarily upon their own intuition and the competence and integrity of their key subordinates to manage and control their company’s operations. By the mid-1980s, when the privately owned business had annual sales measured in the tens of millions of dollars, Emanuel realized that JGI needed to develop a more formal accounting and control system. That realization convinced him to begin searching for a new company controller who had the expertise necessary to revamp JGI’s outdated accounting function and to develop an appropriate network of internal controls for the growing company. In 1987, Emanuel hired Steve Cohn, a CPA and former auditor with Coopers & Lybrand, as JGI’s controller. Cohn, who had extensive experience working with a variety of different inventory systems, immediately tackled the challenging assignment ofcreating a modern accounting and con-trol system for JGI.
Among other changes, Cohn implemented new policies and procedures that provided for segregation of key responsibilities within JGI’s transaction cycles. Cohn also integrated computer processing throughout most of JGI’s operations, including the payroll, receivables, and payables modules of the company’s accounting function. One of the more important changes that Cohn implemented was developing an internal reporting system that produced monthly financial statements the Greenbergs could useto make more timely and informed decisions for their business. Cohn’s new financial reporting system also allowed JGI to file…………………

1. Identify important audit risk factors common to family-owned businesses. How should auditors address these risk factors?
2. In your opinion, what primary audit objectives should Grant Thornton have established for JGI’s (a) Prepaid Inventory account and (b) Merchandise Inventory account?
3. Assess Grant Thornton’s decision to rely heavily on JGI’s delivery receipts when auditing the company’s prepaid inventory. More generally, compare and contrast the validity of audit evidence yielded by internally prepared versus externally prepared client documents.
4. Describe the general nature and purpose of a “walk-through” audit procedure. Are such tests required by professional auditing standards?
5. Identify audit procedures, other than a walk-through test, that might have resulted in Grant Thornton discovering that Fred Greenberg was tampering with JGI’s delivery receipts.
6. Once an audit firm has informed client management of important internal control weaknesses, what further responsibility, if any, does the audit firm have regarding those items? For example, does the audit firm have a responsibility to insist that client management correct the deficiencies or address them in some other way?

Question: Auditors commonly find themselves facing situations