Question

Question: Tana 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’s financial statements. In discussing the audit fee, Allnet’s 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’s firm.

Required 2. What are the ethical factors in this situation? Explain.

Short answer

The financial statements are written records of the financial health of the company and ethical factors are the auditor and precondition for an audit.

Step-by-step solution

Definition of Financial Statements

The financial statement is defined as the written records which show the financial health of the company.

Ethical Factors

The ethical factors are as follows:

1. The auditor

2. The precondition for an audit

The auditor must perform two activities which are as follows:

• The auditor must determine the acceptability of the financial reporting framework which has to apply while preparing the financial statements of the company.

• The auditor should obtain the agreement of management which acknowledges and understands the responsibility.