ABSTRACT: This instructional case allows students to apply various professional standards to the evaluation of audit risk, fraud risk, and client acceptance issues on a new client engagement. It focuses on the audit of a new client in the oil and gas industry when information from a whistle-blower raises questions about the possibility of fraud. In Part I of the case, students are asked to identify unique characteristics of the contract bidding practices within this specialized industry, and to evaluate the related audit risk and client acceptance issues. Part II considers the impact of a whistle-blower letter on the auditors’ professional skepticism, communication requirements, and related fraud risk issues.

  Suitable for auditing courses at both the undergraduate and graduate levels, this case portrays a timely scenario, not only because of the applicable recent auditing pronouncements, but also because it presents a specialized and regulated industry that has also been highly publicized.

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