In: Other Topics
1. Should auditors evaluate the soundness of a client’s business model? Defend your answer.
The engagement team should understand the business model in order to an understanding of the business activities and to properly evaluate and issue an opinion.
2. Identify and briefly describe the specific fraud risk factors present during the 2000 NextCard audit. How should these factors have affected the planning and execution of the engagement?
First of all, the nature of NextCard operations was very risky. The fact that they authorized credit to customers without properly analyzing their credit report history was the reason of the losses. NextCard was primarily concern of having a large amount of customers regardless of the risk. Because NextCard was on online business, they should execute more caution when accepting clients.
The audit engagement had the responsibility to have a clear understanding of the risk that NextCard was operating in and to establish a low detection risk due to a high risk of material misstatement.
3. What are the primary objectives an audit team hopes to accomplish by preparing a proper set of audit workpapers?
By preparing a proper set of audit workpapers, the audit team ensures that an audit plan was properly follow, and that the account balances and events were properly audit. These workpapers serve as backpack for the submitted opinion.
4. Identify the generally accepted auditing standard violated by the E&Y auditors in this case. Briefly explain how each standard was violated.
Several of the generally accepted auditing standards were violated by the E&Y auditors. Regarding the Standards of Field Work, for instance, Robert Trauger failed to adequately plan the work and to properly supervise any assistants. Oliver Flanagan did not have sufficient understanding of the entity, its environment, its internal control, and the risk of material misstatement of the financial statements. Flanagan did not perform...