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Nonprofit organization solicits bids for an audit

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A municipal village or a nonprofit organization solicits bids for the annual audit from local audit firms, and the firm with the lowest bid is selected.

Answer the following questions regarding the given scenario:

Is this the most prudent choice of auditor for the organization?
What should the managers take into consideration when attempting to identify a suitable audit firm?
Discuss whether or not the lowest bid is always the best option.

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Solution Summary

This solution discusses each of the questions presented in regards to a municipal village or a nonprofit organization seeking bids for an audit.

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Is this the most prudent choice of auditor for the organization?

-- The village chose the lowest cost provider for the audit. Based on this alone, we can say that prudence was not followed. When someone makes a decision based on the most prudent choice, the decision-maker or decision makers attempt to use a high level of diligence and care in making their selection. The only information we are given in this scenario is that the village or nonprofit organization made their selection based solely on price without regard to any other factor. Therefore, we can argue that prudence was not used in this decision-making process.

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