...The Art Of Auditing Internal Auditor, August, 2000 by Lawrence Metzger "Creativity" and "auditor" are not contradictory terms. In fact, creative thinking is the linchpin of effective internal auditing--and it's a skill you can learn and polish. The work of internal auditors is as much an art as it is a science or technique. The internal audit process encompasses far more than a series of rote checklists; it is much more akin to an archeological dig, where layers of information are methodically uncovered. To connect and understand the layers of organizations, the internal auditor must be able to think creatively. Not only is creativity an inherent aspect of successful internal auditing, but it has become a hot, sought-after commodity in all fields. In his book Jamming, John Kao observes that we are living in an age of creativity. He argues, for example, that global competition is increasingly about a company's ability to mobilize its ideas, talents, and creative abilities. Kao maintains, along with other observers, that companies will increasingly be measured by their knowledge, and he emphasizes that creativity is the crucial variable in the process of turning knowledge into value. Knowledge is more than mastery of facts and data; it is also insight-the ability to see into a situation and make connections. Ideas are interconnected insights that we can grab and run with. And it is creativity that enables the transformation of one form of knowledge to the next. Kao states that...
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...Enron Case Study Frank Bruno Auditing 1:00-2:15 Enron Case 2 Due: 04/28/05 1. Please explain why an accounting and auditing research function (like Andersen's PSG) is important in the operations of a CPA firm. What role does the function play in completing the audit? Due to new regulations, NYSE listed companies are required to have internal audit departments. The purpose and importance of an internal audit team are very obvious. The internal audit team is responsible for determining the scope of the work and having the personnel and budget to complete it. This internal entity is very important ever since such accounting scandals as Enron and WorldCom. They are required to provide management and the audit committee with ongoing assessments of the company's risk management processes and system of internal control. In terms of these groups in association with CPA firms it is also important to have. As seen in the Enron case, the PSG group voiced its nonapproval to the companies formation of a new entity. These groups usually have the companies general goal in mind during the decision making process. In the case of Enron, it did not see any benefit in the creation of a new group. A member of the group cited several reasons including conflict of interests by having the CFO manage the venture equity group. Internal auditing functions play large role in the scope and budget of an audit. 2. Please consult Section 103 of SOX. Do you believe that the Engagement Leader of an Audit...
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...Auditing Introduction Letter University of Phoenix ACC 546 Auditing Introduction Letter To: Management of Apollo Shoes From: Martin & Associates, CPA Re: Auditing and Assurance Services Thank you for the opportunity to present the benefits and services that our firm offers. This letter is intended to explain the benefits of each option, our role in providing the available assurance services, and the qualifications required to meet the standard for the services offered. Martin & Associates has been serving our clients for ten years with a strong emphasis on the auditing and assurance services. Our firm takes pride in building trusting relationships, while performing an effective audit to aid in the success of our clients. First and foremost we must understand what auditing and assurance services are. According to Wikipedia, “The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project, or product. The term most commonly refers to audits in accounting, but similar concepts also exist in project management, quality management, and energy conservation.” When it comes to accounting audits are performed to establish the validity and reliability of information that is being reviewed, in addition to provide an assessment of the internal control system. The main goal of an audit is to express an opinion on the information that is being reviewed based on work that is being done on a test basis. Our firm’s...
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...Litigation Exposure in Identifying & Investigating Fraud Risk In the backlash of fraud and failed auditing, a more stringent standard for auditors was enacted in hopes to avoid the failures of the early 2000s. The Sarbanes-Oxley Act and statements of auditing standards such as SAS 99 were put into place to accomplish this goal. Yet, with more stringent standards comes a heightened public expectation that may increase the potential litigation auditors face. In the world of auditing, a very important aspect that should always concern an auditing firm is the risk of litigation exposure that a firm may encounter in performing an audit. Here, we will look at the guidelines advocated by Statement on Auditing Standard No. 99 in the context of several scenarios to see how the procedures promoted by it may increase the risk of litigation exposure that a firm faces in the event that fraud goes undetected. Statement on Auditing Standard no. 99 requires, as part of planning the audit, that there be a discussion among the audit team members to consider how and where the entity's financial statements might be susceptible to material misstatement due to fraud and to reinforce the importance of adopting an appropriate mindset of professional skepticism. SAS 99 instructs auditors to identify general and specific fraud risks that might be present in a client’s company. While this initial identification of areas where potential fraud risks exist is of great importance for the auditor...
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...67% of the privatesector jobs in Europe are created by SMEs, which represents a major share in the overall economy of a country (European Commission, 2008). Most SMEs encounter limited financial as well as non-financial resources. They depend upon the creditors like banks and other financial institutions, or private equity. In this regard, banks have become one of the major sources for SMEs fulfilling their financial requirements. However, banks are less likely to provide loans without any reasonable assurance of creditability of the firms. Banks generally rely on the financial information of the firms. They do prefer credible audited financial statements by independent auditors as a matter of assurance. In other words, most banks view auditing as a guarantee for the quality of information disclosed in companies as well as a foundation for their credit rating process. Banks believe that the credit rating would be unsure without audit obligation (Andersson & Paulsson, 2005 as cited in Ademi & Stigborn, 2010). Quality audit is an official, step-by-step assessment and evaluation of the activities and/or decisions opted, in reference to records, to ensure their applicability to meet...
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...Zac Johnson ACCT 7401 Individual Assignment 1 3/25/2015 Sarah Jones Case Frame the ethical issue The ethical issue in this case deals with Sarah Jones independence of conducting the audit of FNB because her parents are dependent on the dividends from their significant investment in the bank. Gather all the facts Sarah Jones serves as an auditor in charge at a reputable accounting firm Trout & Cod CPA firm. She supports her family financially while her husband is a stay-at-home dad taking care of their two kids. During the audit of First National Bank (FNB), Sarah discovered that several significant commercial loans had deteriorated since the previous audit. Sarah believes that the reserves are not adequate because of the deteriorating loans and because of this she estimates the stock price could drop from $45 a share to below $18 with dividends being discontinued. Her situation becomes an ethical issue when she finds out that her parents invested nearly 25% of their retirement funds in FNB’s common stock. Her parent’s investment does not conflict with the CPA firm’s conflict of interest policy because her parents are not dependent on Sarah. Identify the stakeholders and obligations Trout & Cod CPA firm: Sarah’s obligations to the firm is to maintain the high standards and strong reputation that the firm has built. First National Bank: Sarah’s obligations to the FNB is to ensure that she provides professional services to the best of her ability. Shareholders...
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...ACCA Exam Technique Articles OpenTuition.com ACCA P7 Exam technique ( see also the section on general exam technique ) ๏ put very simply, the way to approach the P7 exam is to “read, plan, read again and then write” ‣ ‣ ‣ work on the principle that each valid, relevant point that you make will score a mark and the more valid points you make, the more marks you will score! common sense? I should say so! ๏ “But the pass rate percentage can be down in the low 30s. If the large majority of my contemporaries are employed by accounting / auditing rms, why is the pass rate so low? And what chance do I have - I have absolutely no auditing experience at all?” ‣ around 70% - 75% of your contemporaries are employed by audit rms. Yet there is a pass rate in the low 30s. Does this not tell you that, even if no non-auditors were to pass, the majority of those with auditing experience still fail? there have to be some underlying reasons for this! ‣ • I personally believe that there are a number of contributory factors including, in no particular sequence: • not reading the question carefully enough and therefore failing to address the question requirements knowing too much and therefore misallocating their time failing to write the obvious points - because they are so obvious reluctance on the part of non-natural-English-speaking students to write enough points when I was a student my own audit manager ( big 4 rm ) managed to fail the audit exam! For huge...
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...Generally Accepted Accounting Standards Auditing is an important part of any business. The auditor has many standards in which he or she must follow in order to comply with Generally Accepted Accounting Standards (GAAS) and the Public Company Accounting Oversight Board (PCAOB). Many factors play a part in the audit process. Every company has their own specific way, but public companies have to follow generally accepted accounting principles (GAAP) as outlined in the Sarbanes-Oxley Act of 2002. Elements of the GAAS General Standards There are three “elements” associated in the standards of GAAS; these are general standards, standards of fieldwork, and standards of reporting (Boynton W. & Johnson R., 2006). General Standards require that every auditor must have a formal university education, practical training, and experience in auditing, and continuing education in the auditor’s professional career (Boynton W. & Johnson R., 2006). Therefore, training and ability are very important. An auditor must also be able to think objectively. An auditor cannot have any encouragement from outside sources in decision-making. The last general standard is that the auditor must be proficient and avoid any careless mistakes while contributing to the audit in review (Boynton W. & Johnson R., 2006). Standards of Fieldwork The second element is standards of fieldwork. The standards of fieldwork are the conduct of the auditor while at the entity’s place of business (Boynton W. & Johnson R....
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...BACKGROUND OF STUDY To be a developed nation, it is important for industries, and the country, as a whole, to achieve global competitiveness. In this respect, the IMP3 has adopted the overall theme ‘Malaysia - Towards Global Competitiveness’ and other countries also working towards on that. Industries must strive for global competitiveness through the transformation and innovation of the manufacturing and services sectors. According to The Small and Medium Industries Development Corporation (SMIDEC) SMEs account for close to 99 % of all the establishments in the manufacturing, services and agricultural sector, provide around 65% of total employment and it is expected that the value added production of SMEs to be around RM120 billion or 50 % of total production in the manufacturing sector by 2020. Malaysian SME contribution to the GDP was only 32 percent in 2006 compared to that of 40 percent in the United States, 57 percent in Germany, 55 percent in Japan, 60 percent in China, 57 percent in Indonesia and Thailand at 38.9 percent. Innovation and the capacity to innovate are among the most important factors that affect an organizations competitiveness and performance SMEs due their small size, limited managerial capabilities, as well as limited resources do face a challenging task in innovating. SMEs as compared to larger firms are weakly structured in innovation, low market power and scarcity of resources in order to appropriate the benefit of their innovation. In...
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...skepticism and independence. The case is based on an actual incident and illustrates the exercise of professional skepticism by a staff auditor who finds himself in the uncomfortable situation of accusing a friend of fraud. The case demonstrates the difficult personal and professional choices that auditors must sometimes make. In analyzing the case, students consider auditor independence rules, as well as the concepts of independence in appearance and independence in mental attitude. Students are asked to identify the types of audit evidence and internal controls needed to detect and prevent the fraud, and to consider the appropriate audit response to an adverse situation. Keywords: auditing; professional skepticism; fraud; independence; internal controls; misappropriation of assets. L THE CASE ife is good, thought Will Stallard as he got into his truck that October morning. He could have been thinking of any one of a number of things—his wife of seven years, his beautiful baby girl, or his job as a staff auditor at Dykstra, Banister, and Huston (DB&H), a CPA firm with offices in Montgomery and Mobile, Alabama. Or, maybe it was the slight chill in the air and the opening of bow-hunting season in nine days. Whatever it was, his feeling of satisfaction inspired him to reflect on the path that got him to this point this morning. As a nontraditional student at a local university, he struggled to balance competing demands on his time. He maintained his business as a plumber while carrying nine...
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...#: 8 Related Chapter/Topic: KPMG Professional Judgment Monograph Overview: For Topics 19 and 20, students read the KPMG Professional Judgment Monograph (outside of class) and viewed the ESPN 30 for 30 Documentary “Judging Jewell” (in class). The assignment was for students to identify roles similar to auditors and the various instances of bias and errors in judgment that the Monograph described. The class discussed this as a group, with the instructor asking a few additional questions to underscore a few points. Course Learning Objective(s) Addressed: Be able to apply critical thinking skills in the auditing area. Key Points: 1. Richard Jewell, a temporary security guard hired by an Olympic sponsor, is falsely accused of the Olympic Park bombing that killed and injured many spectators at the Centennial Olympic Games held in Atlanta, GA in 1996. Supporting Thoughts/Facts: a. Richard Jewell was an unemployed, middle-aged man seeking work in law enforcement. He had previously worked in the field. b. He moved back to Atlanta and lived with his mother to work as a security position with an Olympic sponsor, AT & T, during the Atlanta Games. His friends and family appearing in the documentary indicated that he felt a sense of duty and hoped to have a long-term career in law enforcement. c. Richard Jewell was responsible for first spotting a suspicious backpack, then alerting other security personnel and evacuating dozens of spectators from the area. d. Keep in mind...
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...parties; industry analysts' reports; comparable data about competitors (benchmarking); controls manuals; information obtained by the auditor from such audit procedures as inquiry, observation, and inspection; and other information developed by or available to the auditor that permits the auditor to reach conclusions through valid reasoning. The performance principle requires auditors to gather sufficient appropriate evidence to be considered appropriate, evidence must be relevant and reliable (auditing & assurance services 4th). Relevance refers to the nature of information provided by the audit evidence. For example, when auditors confirm accounts receivable with customers, this providence evidence that the account is legitimate, but does not provide evidence that he account will ultimately be collectible (auditing & assurance services 4th). Reliability refers to the extent of trust that auditors can place in evidence; evidence that is reliable can be thought of as being of high quality (auditing & assurance services 4th). Professional standards note that evidence is more reliable when: 1) it is obtained directly by auditors,2) it is obtained from sources...
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...Case #2.4 – Enron: Quality Assurance I. Technical Audit Guidance To maximize the knowledge acquired by students, this book has been designed to be read in conjunction with the post-Sarbanes-Oxley technical audit guidance. All of the post-Sarbanes-Oxley technical guidance is available for free at http://www.pcaobus.org/Standards/index.aspx. In addition, a summary of the Sarbanes-Oxley Act of 2002 is also available for free at http://thecaq.aicpa.org/Resources/Sarbanes+Oxley/Sarbanes-Oxley+–+The+Basics.htm. II. Recommended Technical Knowledge The Sarbanes-Oxley Act of 2002 Section 103 Section 203 III. Classroom Hints This case provides students with an opportunity to understand what is meant by quality control in the financial statement audit process and to understand why a quality control mechanism is an important internal control procedure for an audit firm. Further, the case provides a terrific example for students to see what can actually happen when quality control breaks down at an audit firm. In the case of Arthur Andersen, the breakdown in quality control ultimately led to the demise of the firm. To meet these objectives, this case illuminates the role of the professional standards group (PSG) at Arthur Andersen and the dialogue that occurred for several technical issues between Andersen’s PSG and the lead partner on the Enron engagement, David Duncan. We believe it is essential for students to carefully read over the recommended technical knowledge, along...
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...Week three assignment one: Next Card, Inc. James Erkhart Professor: Ashley Harper Contemporary Auditing April 28, 2013 This research will show that they are still individuals will try to make a name for themselves. They are ways for individuals to try be dishonest and thinking they are getting away with the unethical situations, but with the strict rules and regulations in place they will get caught fast. Given PCAOB oversight of accounting firms and the AICPA code of conduct, discuss whether or not you believe that public accounting firms can successfully manipulate audit work papers and records of clients engaged in fraudulent activity. The PCAOB and AICPA has done a good job on the code of conduct but it doesn’t completely stop all fraudulent activity. I believe in my opinion you are still going to have fraudulent activity going on as long this world has business transaction taking place. I do agree that public accounting firm can successfully manipulate audit work papers and records if a client is doing fraudulent activity. The question always remain when will the fraudulent activity stop. The answer is never because as long we have businesses someone go to the dark side and do dishonest...
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...Among the ten generally accepted auditing standards is the standard that requires an auditor to have independence in mental attitude. As with so many rules and guidelines set forth by the government and numerous other organizations, the interpretations of many of these rules can be vastly subjective. During the case against Health Management’s founder Clifford Hotte, his co conspirators and the auditors at BDO Seidman the defendant’s attorney Michael Young brought forth the idea that according to the generally accepted auditing standards that requires an independence of mental attitude it never formally states that a friendship between an auditor and the client is be completely prohibited. The dilemma with deciphering the interpretation of the standard is determining where the line should be drawn between these relationships and the auditor’s ability to maintain these relationships and the independence considered necessary to give an unbiased opinion when it comes time to write a report that is unprejudiced and reliable to the public and investors at large. Let us begin with Health Management’s CEO Clifford Hotte and CFO Drew Bergman’s 1995 inventory fraud scandal by which author Michael C. Knapp’s assertion could be considered as one of the least ingenious corporate fraud scams to date. The objective was to increase inventory as well as make minor adjustments to a small number of other accounts in order to reach the companies target earnings as reported by analysts previously...
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