The company in question had a very significant amount of plant assets and also had a very significant maintenance expense each year. The company goals were reflected at every level of the company. The CEO knew that his job was on the line and to keep it he had to meet certain earnings goals. In establishing those goals a certain amount was agreed on as the budget amount for maintenance expense for the year. One VP had most plant assets under his supervision and also his department spent most of the maintenance dollars. If he met the maintenance goals he would receive a bonus equal to his annual salary. Under the VP were 5 managers whose sections spent the maintenance dollars. The VP told the managers to do what was necessary to meet the maintenance goals. In a memo to the managers the VP stated to the managers there was only one choice and that was to have the maintenance expense be at or below budget and that he would be very upset with anyone who exceeded their allocated amount. All turned out well as the maintenance expense came in under budget.
What would you as the senior auditor do?
As the senior auditor, I ensure that the audit procedures for maintenance expense and plant assets including the test of balances, test of details, substantive tests and analytical procedures be properly design ...
A senior auditors decision is examined.