Chapter 2, Problem 36P

Joe Rezzo, a college student majoring in accounting, helped finance his education with a part-time job maintaining all accounting records for a small business, White Company, located near the campus. Upon graduation, Rezzo passed the CPA examination and joined the audit staff of a national CPA firm. However, he continued to perform all accounting work for White Company during his “leisure time.” Two years later, Rezzo received his CPA certificate and decided to give up his part-time work with White Company. He notified White that he would no longer be available after preparing the year-end financial statements.

  On January 7, Rezzo delivered the annual financial statements as his final act for White Company. The owner then made the following request: “Joe, I am applying for a substantial bank loan, and the bank loan officer insists upon getting audited financial statements to support my loan application. You are now a CPA, and you know everything that’s happened in this company and everything that’s included in these financial statements, and you know they give a fair picture. I would appreciate it if you would write out the standard audit report and attach it to the financial statements. Then I’ll be able to get some fast action on my loan application.”

Required:

1. a.      Would Rezzo be justified in complying with White’s request for an auditor’s opinion? Explain.
2. b.      If you think Rezzo should issue the audit report, do you think he should first perform an audit of the company despite his detailed knowledge of the company’s affairs? Explain.
3. c.       If White had requested an audit by the national CPA firm for which Rezzo worked, would it have been reasonable for that firm to accept and to assign Rezzo to perform the audit? Explain.