Joan is a new employee of XYZ CPA firm in Chicago, Illinois. She recently passed the Certified Public Accountant exam and is excited to work as a new auditor for one of the Big Four accounting firms. Joan has narrowed her interests to the healthcare industry and, as a result, will mostly be working with the same individuals throughout the year. After a few months, Joan began to realize something about her managing partner as well as the other staff auditors that she worked alongside.
She noticed there was always extremely intense pressure placed on each of the auditors to come in under the amount of hours allocated for a particular task. If it appeared that someone might be over the desired hours, there were two popular solutions that Joan noticed: one approach was to prematurely sign off on the assigned duties without actually completing them, and the second approach was to work the extra hours but not report time for those hours.
Joan has been assigned to the Accounts Receivable portion of the audit, and in recognizing the importance of this account to the fair presentation of the financial statements, has been working very precisely and diligently, possibly more than might be necessary. As a result, Joan has already reached her budgeted hours for this account but still has one week left to complete all the related tasks for Accounts Receivable.
Joan really does not want to report more hours than those budgeted for this account, especially since that would be very rare for the firm, and she is new to the staff. Joan is frustrated with the attitude toward reporting hours, particularly because the subsequent year’s budget is based on last year’s actual hours performed, which typically are underreported to ensure lower audit costs. This phenomenon can lead to poorer audit quality if auditors choose to prematurely sign off on tasks before they are completed.
Joan has been reflecting on what to do in this complex situation. She has come up with three plausible options:
- Work all hours that are necessary to verify the fair presentation of Accounts Receivable AND report all those hours,
- Work all hours that are necessary to verify the fair presentation of Accounts Receivable BUT only report the budgeted hours, or
- Work and report only the budgeted hours for Accounts Receivable even if that means that the quality of work is sacrificed and/or that Joan must prematurely sign off on some audit tasks.
What should Joan do? Does she have other alternatives?