Murphy Tymshare Inc

Auditors don't particularly favor to turn down current or prospective clients, especially when they own stock % in the company or if it is well-known company like Shell however being worried about their reputation and future works, they try not to audit dishonest clients, because it can have dire consequences for the auditor. In the case if auditor becomes involved with bad clients, it is necessary to weigh revenues earned from desirable clients against potential problems.

The most important aspect in client acceptance is client's integrity. Before getting involved with the client, an auditor needs to learn about the business, environment of the business, management of the company, and any other things related to an acceptance of a client.

Murphy Tymshare Inc is building and selling resort time-share condominiums in South Florida, it has been in business for five years. It recently bought out competing and floundering time-share development. The company stock is mainly owned by Jake (51%), the other 49 % is owned by friends and family members.

Identified factors that indicate potential problems with the audit of Murphy Tymshare Inc will be discussed below.

1Q. Knechel in his book describes two types of factors, factors within the control of the auditor and those which must be evaluated by the auditor. Factors that are controlled by the auditor are expertise and staffing, and independence. Factors that should be evaluated by the auditor are integrity, reputation and image, accounting practices, financial status, profitability.

These factors are crucial and they all may create potential problems with the audit of MTS in order to provide correct and reliable conclusions.

They are evidently linked to MTS and to be clear how they are interrelated I will explain it more profoundly.

Expertise and staffing

"Does the firm have the requisite staff available that possesses or can obtain the needed expertise for completing the engagement on a timely basis in accordance with professional standards?

In this particular case, it is hard to say that the firm has required staff that can deal with this type of work not only in the right way, but also be competent and quick.

As it was mentioned in the case, Jake is flamboyant character, and he likes to spend money in conspicuous ways. It gives us an idea that he spends his time looking for something more interesting than follow what is happening in his company. For Jake it is enough to have "top guy" on regular basis, who can substitute him and probably keep him informed, but is it enough to keep the business ongoing, especially when most of stockholders actual positions don't have anything to do with condominiums (MTS's business area).

Senior management has been with the company for a long time, but lower ranks are not taken as serious as they should, especially staff "flunkies" that do most of the fieldwork.

Consequently his lack of interest in such things makes people who are working in MTS treated unfairly, not paid attention to, not motivated and moreover not respected for their work. He has been known for firing people in a very dramatic fashion, not because of bad work, because he is unhappy. This eventually creates a big problem and risk for the company, because of the lack of expertise and requisite staff, there will be negative influence on the work, business profitability and prosperity. In order to be successful it is necessary to hire staff that has enough expertise in any field of the business and if they will be motivated they will accomplish their work even better and that will provide an advantage to the firm. This may well decrease risks and any problems for MTS if there are future audits of any legal entities (e.g. IRS) that audit MTS on a regular basis.

Independence

The second issue is independence, which is undoubtedly an important factor in establishing the credibility of the audit opinion.

I do think that the firm maintains some independence from parties like shareholders; however due to our firm that already does tax works for MTS, it becomes not entirely independent. The tax firm can provide us information about client's business, financial stance, and on top of that information about major stock owner. Even though their perception may be somewhat different from reality, it is in some way hampers opinion of our audit firm.

Integrity has been the most powerful weapon in any company, most important and oft-cited of virtue terms. The main owner of MTS can be described as impulsive with strong character. He has been party to many lawsuits, but of course we don't know for what reasons. However, as he holds 51% of the company's shares, we can't with certainty say that he possesses adequate integrity, as being given background information about