According to the case, KPMG’s audit clients in the mortgage industry included the largest subprime lenders such as Country wide, HSBC, New Century and Wells Fargo. This gives KPMG advantages because, first of all, they have enough experience, knowledge, and skills to audit those types of companies properly. However, as auditors worked on the same type of companies over and over again, they might lose their attitude of skepticism towards their clients because they get familiarized with them. The familiarity may post risks to the independence of the auditor. If an auditor is too familiar with a client, he or she may not deal with the client’s business with appropriate methods and therefore increasing the risk of internal control.
The staff turnover rate is known to be high in the public accounting industry. Due to the staff turnover, knowledgeable and skillful staffs on an engagement may not be available for the next engagement. Therefore a firm should always measure the amount of turnover and transfers of audit personnel and estimate the number of turnover constantly. It should hire enough staffs and give them enough training. They should also make sure that each engagement should include enough senior staffs to lead the new staffs. In the case, the New Century management questioned new audit engagement partner as he was newly transferred to the office and he doesn’t have enough experience in dealing with mortgage industry. Therefore the rotation of partners should ensure that at least one partner should have the knowledge of the heavily concentrated clients’ industry that the firm deals with.
The Term Paper on Audit Exam
... in connection with the engagement, and/or particular audit procedures requested by the client. 1. Inherent risk ... allocation, Examine an analysis of inventory turnover. GAAP requires that inventory be written ... an increased understanding of your business and industry, we will also make many inquiries ... auditor’s professional reputation. 4. Advise the audit staff to be alert regarding the situation. ...
