| Course | ACC 546 Auditing (ACC/546) |
|---|---|
| Week | 1 |
| Paper type | Auditing profession and role paper |
| Length | about 1,189 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | MS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 546 Week 1
Choosing a New Auditor for a Listed Company: The Audit Committee's Role, Independence Rules for Non-Audit Services, Partner Rotation and What PCAOB Oversight Means for a Composite Mid-Cap Manufacturer
[Student Name]
University of Phoenix
ACC/546: Auditing
Week 1 Assignment
[Instructor Name]
[Date]
The company, its audit committee and the candidate firms are composites written for a model paper; law, standards and research findings come from the sources listed.
A composite manufacturer of industrial filtration systems, listed on a national exchange with a market value of about $2.5 billion, has used the same audit firm for fourteen years. This year the firm's lead engagement partner reached the five-year rotation limit, and the firm proposed a 28% fee increase for next year. The audit committee decided to request proposals from three firms, including the incumbent. Its chair, a retired chief financial officer, asked the company's director of financial reporting, a CPA, to prepare a briefing on the rules that would govern the choice. Selecting an auditor is the one financial decision in a public company that management is not supposed to make. This paper summarizes that briefing.
Why Public Companies Need Auditors
Investors rely on financial statements prepared by management, which has incentives to present results favorably. An independent audit reduces the risk that statements are materially misstated, which lowers the cost of capital and supports market confidence. Federal securities law requires audited statements for public companies, and the accounting failures of the early 2000s led Congress to reshape oversight of auditors through the Sarbanes-Oxley Act of 2002.
Who Sets the Rules
The Securities and Exchange Commission oversees financial reporting by public companies and has authority over the PCAOB. The Public Company Accounting Oversight Board registers audit firms, sets auditing, quality control and independence standards for public company audits and inspects registered firms. The AICPA's Auditing Standards Board sets standards for private company audits, and its code of conduct governs members generally. The candidate firms must be registered with the PCAOB and will follow its standards, including its standard for the auditor's report (Public Company Accounting Oversight Board, 2017).
The Audit Committee's Role
The audit committee, composed of independent directors with at least one financial expert, is directly responsible for appointing, compensating and overseeing the auditor. Management may help evaluate proposals and provide information, but the committee decides and approves the fee. The committee also receives the auditor's required communications, including critical accounting policies, significant judgments and disagreements with management.
Independence and the Services the Company Wants
The company has been buying two services from its auditor: preparation of its international tax provision support and, next year, help implementing a new consolidation and reporting system. Independence rules prohibit a public company's auditor from providing certain non-audit services, including bookkeeping, financial information systems design and implementation, appraisal and valuation services, internal audit outsourcing, management functions, human resources services, broker-dealer services, legal services and expert services unrelated to the audit. Permitted services, including many tax services, require preapproval by the audit committee.
The tax work is generally permitted, although tax services involving aggressive tax positions or marketed to executives are restricted, and the committee must preapprove it. The system implementation is prohibited because it would design and implement a system that generates information for the financial statements the firm will audit, a self-review threat. The committee decided that whichever firm it selects as auditor will not perform the implementation; the company will hire a different consultant.
Partner Rotation and Firm Tenure
US rules require the lead and concurring partners to rotate off a public company engagement after five years, with a five-year time-out, and other audit partners to rotate after seven years. The rules do not require the firm itself to rotate. The committee is considering a change of firm for reasons of fee and fresh perspective, not because rules require it. The auditor's report now discloses the year the firm began serving as auditor, so investors can see tenure.
Other Protections for Investors
The auditor of a public company also reports on the company's internal control over financial reporting when the company is an accelerated filer, as this manufacturer is. The auditor must communicate critical audit matters in its report, matters communicated to the audit committee that relate to material accounts and involved especially challenging judgment. Whistleblower protections encourage employees to report concerns, and the audit committee must have procedures for receiving complaints about accounting and auditing matters.
PCAOB Inspections
The PCAOB inspects firms that audit more than 100 public companies annually and smaller firms at least every three years, selecting engagements and reviewing them for deficiencies. Inspection reports are public, though parts dealing with quality control criticisms remain confidential unless not remedied. The committee will ask each candidate for its recent inspection results and how it addressed any findings in its industry practice.
The Expectation Gap
Directors and investors often assume that an audit guarantees accuracy and will find all fraud. An audit provides reasonable, not absolute, assurance that the statements contain no material misstatement, reached through testing rather than a review of every transaction. The auditor's report explains these responsibilities, and the committee's briefing reminded directors that management remains responsible for the statements and internal control.
Audit Quality and the Selection Criteria
DeFond and Zhang (2014) reviewed archival research and described audit quality as greater assurance that financial statements faithfully reflect the company's economics, shaped by auditor incentives, competence and client characteristics. Drawing on that view, the committee set criteria: industry experience with manufacturers of similar size and complexity, the proposed partner's background, the firm's inspection results, the team's continuity plan and use of data analytics, independence from the company's current consultants and fee, weighted last. Price alone would be a poor proxy for the quality the committee is paying for, and the committee's minutes will record how each criterion was weighed.
Fees and Quality
The proposed 28% increase reflected the incumbent firm's higher labor costs and additional work on the company's new European subsidiary. The committee recognized that audit fees are partly a price for hours and expertise and partly a signal of risk: a firm that bids far below others may plan less work. It asked each candidate to describe its planned hours by area, the proportion of senior staff time and how it would use data analytics on revenue and inventory, so fees could be compared on the basis of the work proposed.
The Transition
If the committee selects a new firm, the transition must be managed. The new auditor will review the predecessor's working papers with the company's permission and communicate with the predecessor about any disagreements or integrity concerns before accepting the engagement. The company must file a current report with the SEC disclosing the change and whether there were disagreements with the former auditor, and the former auditor provides a letter stating whether it agrees with the company's description. The committee planned the change to take effect after the current year's audit, so the new firm can observe year-end inventory counts and build its understanding before its first opinion.
Conclusion
The audit committee, not management, will choose the manufacturer's next auditor. The candidates must be PCAOB-registered and independent, and the company must end any prohibited services, such as system implementation, before the new firm begins. Partner rotation brought the question forward, but the committee's criteria focus on the quality of assurance investors receive.
References
DeFond, M., & Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2-3), 275-326. https://doi.org/10.1016/j.jacceco.2014.09.002
Public Company Accounting Oversight Board. (2017). The auditor's report on an audit of financial statements when the auditor expresses an unqualified opinion (AS 3101).
Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (2002).
What the ACC 546 Week 1 instructions ask
ACC 546 Week 1 usually asks graduate students to explain the public accounting profession and the role of the independent auditor. Typical requirements include the purpose and history of auditing, the organizations that set auditing and independence standards for public and private companies, the role of the audit committee, auditor independence and prohibited non-audit services, partner rotation, PCAOB registration and inspection, the expectation gap and the qualities of a high-quality audit. Many prompts use a company decision or a well-known failure to illustrate, and some ask for a memo to an audit committee. The paper should apply the rules to specific facts, recommend a course of action and cite law, standards and research in APA style.
How this ACC 546 Week 1 example is built
An audit committee choosing a new auditor faces most of the profession's rules at once, which makes the week's material practical. The paper starts with why public companies need audits and how the audit committee came to own the relationship. It then applies the independence rules to two services the company wants, tax work and help with a system implementation, showing why one is allowed with approval and the other is not. Partner rotation and inspections are explained as the company experiences them. The expectation gap section contrasts what directors and investors assume with what an audit provides. The committee's criteria for choosing a firm close the paper, supported by research on audit quality.
ACC 546 Week 1 grading rubric: where the points go
Graduate grading for the opening auditing paper tends to reward accurate description of the regulatory structure, correct application of independence rules to facts and a thoughtful account of audit quality. Faculty check that the roles of the SEC, PCAOB and AICPA are distinguished, that the audit committee's responsibility for appointing, compensating and overseeing the auditor is described, that prohibited services are identified and permitted ones require preapproval and that rotation rules are stated correctly. Research-based discussion of audit quality and the expectation gap adds depth. Clear writing, a practical recommendation for the committee and citation of law, standards and research complete the rubric.
ACC 546 Week 1 help: mistakes to avoid
ACC 546 Week 1 papers often describe independence as a general attitude instead of applying the specific prohibitions. Identify each service the company wants and test it against the rules. Another common error is saying management hires the auditor; for public companies, the audit committee appoints, compensates and oversees it. Students also mix up partner rotation and firm rotation; the US requires rotation of the lead and concurring partners, not the firm. Distinguish PCAOB standards for public company audits from AICPA standards for private ones. Discuss the expectation gap honestly, with an example. Finally, connect audit quality research to the committee's actual decision and to how it weighs fees.
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ACC 546 Week 1 questions, answered
What does ACC/546 Week 1 usually cover?
It usually covers the auditing profession and the auditor's role, including standard setters and regulators, the audit committee, independence rules, partner rotation, PCAOB inspections and audit quality.
Where can I find a free ACC 546 Week 1 sample paper?
The audit committee's auditor selection case, with independence rules applied to specific services, appears here complete, and each rule applied carries a short note alongside it. Working on a different scenario? Describe it, and that first draft is free.
Who hires the auditor of a public company?
The audit committee of the board of directors is directly responsible for appointing, compensating and overseeing the independent auditor.
What non-audit services are prohibited for a public company auditor?
Services such as bookkeeping, financial information system design and implementation, appraisal or valuation, internal audit outsourcing, management functions and legal services are prohibited; permitted services require audit committee preapproval.
How often must audit partners rotate?
The lead and concurring audit partners of a public company must rotate off the engagement after five consecutive years, followed by a time-out period.
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