As part of the audit of Seagram Enterprises, LLC, a national distributor of sheet metal and similar products, the external auditors,
Guerrera CPAs have completed their tests of internal control and have concluded that internal control is effective. A few weeks later,
the firms Chief Financial Officer unexpectedly resigns, citing personal reasons for the sudden departure. What would be the most
appropriate response to this departure by the audit firm?
The audit firm should consider employing additional tests of the client's system of internal control. It is possible with the
sudden departure of a key employee that the client's system of internal control may be affected or compromised, and so it
would be prudent of the auditor to conduct additional tests.
O As a result of the departure of the Chief Financial Officer, the auditors should disregard all prior tests of and opinions
formed on internal control, and instead should fully audit internal control. This would require the auditor to adopt a reliance
strategy.
O The audit firm should formally investigate the recently-departed CFO. A departure of this nature is suspicious and the
executive may be leaving the firm for reasons other than the personal reasons cited.
O The auditor should consult generally accepted auditing standards which require the external auditors to notify the
Securities and Exchange Commission in writing within ten business days of the departure of a key employee.