NCJ Number
68953
Journal
Journal of Accountancy Dated: (OCTOBER 1979) Pages: 61-66
Date Published
1979
Length
6 pages
Annotation
REASONS WHY AUDITING AGENCIES SHOULD CONTRACT FOR INVESTIGATIONS OF PROSPECTIVE CLIENTS AND THE SCOPE OF SUCH INVESTIGATIONS ARE DISCUSSED.
Abstract
AUDITORS SHOULD USE INVESTIGATIVE AGENCIES TO CONDUCT BACKGROUND INVESTIGATIONS OF POTENTIAL CLIENTS BECAUSE (1) THE AUDITING FIRM'S EXPOSURE TO FRAUD AND OTHER DIFFICULTIES IS THEREBY REDUCED; (2) IT IS COST BENEFICIAL WHEN MEASURED AGAINST THE COSTS OF LITIGATION SHOULD A FIRM BECOME ASSOCIATED WITH A CLIENT INVOLVED IN ILLEGAL ACTIVITIES; (3) CRITICAL INFORMATION ABOUT A CLIENT MAY BE HIDDEN FROM PUBLIC VIEW; (4) IMPORTANT INFORMATION CAN BE GATHERED BY EXPERTS WHO KNOW HOW TO WORK WITHIN THE PARAMETERS OF PRIVACY LAWS; AND (4) SUCH INVESTIGATIONS ARE RECOMMENDED IN ACCOUNTING LITERATURE. A THOROUGH INVESTIGATION SHOULD TARGET THE BACKGROUND OF THE COMPANY ITSELF, AS WELL AS COMPANY PRINCIPALS. AN INVESTIGATION SHOULD EXAMINE UNDERWORLD OR QUESTIONABLE CONNECTIONS, FINANCIAL HISTORY, EMPLOYMENT HISTORY, UNDESIREABLE CONDUCT, PAST CRIMINAL BACKGROUND, PERSONAL REPUTATIONS AND DEMOGRAPHICS, AND CONFLICTS OF INTEREST. PRELIMINARY INVESTIGATIONS SHOULD FOCUS ON THE FIRM'S CONSUMER AND VENDOR HISTORY, PERSONNEL POLICIES AND PRACTICES, AND ORGANIZATIONAL STRUCTURE AS AREAS WHERE EVIDENCE OF QUESTIONABLE PRACTICES MAY BE FOUND. (RCB)