Please answer the following questions, and bring up any issues in the article that you find relevant, in about 3-4 pages, double-spaced. Notice that the issues in this article are unresolved and the following questions require your opinion. There are no right or wrong answers. Explain your opinion and support it with examples.
- The authors argue that auditors should not follow a “check off” approach to evaluate tone at the top. Rather, they should be evaluating the psychology of top-level managers and their motivation. Do you agree with this position? Why or why not? How important is psychology in an audit?
- Evaluate the pros and cons of auditors using a “check off” approach during the audit in general as compared to trying to figure out managers’ motivation. Which approach do you prefer? In your answer, consider different issues such as auditing standards requirements, auditor liability, ethics, investor expectations, cost/benefit and auditor qualification to undertake such a task.
- If auditing means verifying the numbers, do auditors cross the line when they try to figure out managers’ intentions in general? Does that game put them in the position of managers themselves (i.e. do they have the right to tell managers how to run the business?) Why?
- If an auditor follows the suggestions in this article and concludes that an action does not violate GAAP, but is still considered earnings management, should he/she stop it and why?
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