Madison Thorne works in a public accounting firm and hopes to eventually be a pa

Question

Madison Thorne works in a public accounting firm and hopes to eventually be a partner. The management of Allnet Company invites Thorne to prepare a bid to audit Allnet%u2019s financial statements. In discussing the audit fee, Allnet%u2019s management suggests a fee range in which the amount depends on the reported profit of Allnet. The higher its profit, the higher will be the audit fee paid to Thorne%u2019s firm.
Required: 1. Identify the parties potentially affected by this audit and the fee plan proposed. 2. What are the ethical factors in this situation? Explain. 3. Would you recommend that Thorne accept this audit fee arrangement? Why or why not? 4. Describe some ethical considerations guiding your recommendation. Madison Thorne works in a public accounting firm and hopes to eventually be a partner. The management of Allnet Company invites Thorne to prepare a bid to audit Allnet%u2019s financial statements. In discussing the audit fee, Allnet%u2019s management suggests a fee range in which the amount depends on the reported profit of Allnet. The higher its profit, the higher will be the audit fee paid to Thorne%u2019s firm.
Required: 1. Identify the parties potentially affected by this audit and the fee plan proposed. 2. What are the ethical factors in this situation? Explain. 3. Would you recommend that Thorne accept this audit fee arrangement? Why or why not? 4. Describe some ethical considerations guiding your recommendation.

Explanation / Answer

There are several parties affected Parties like shareholders, lenders ,investors, analyst supplier, directors, union etc ============================================================================================================================================================================================= A major factor in the value of an auditor report is the auditors independence .============================================================================================================================================================================================= if an auditor accepted a fee that increase when the client reported profit increase .There should not accept this fee arrangement ============================================================================================================================================================================================= Ethical consideration guiding that decision include the potential harm to affected parties by allowing such as fee arrangement to exist . the un acceptable nature of such a fee arrangement guards that profession against unethical actions that could under determine is t real and perceived value to society. =============================================================================================================================================================================================

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