Premium Essay

North Face

In: Business and Management

Submitted By goncalo
Words 4874
Pages 20
http://www.academia.edu/9339215/CASE_STUDY_OF_THE_NORTH_FACE_INC._AUDITING_
Summary
Founded in the mid-1960's by Hap Klopp, The North Face, Inc., was a premier supplier of high-quality hiking, camping, and outdoor gear. In July 1996, North Face's went public. Initially, it sold at $14 per share, then peaked at $30 per share.
In March 1999, NASDAQ halted public trading of North Face stock following the company's announcement it would be restating financial statements due to "bad bookkeeping".Christopher Crawford (CFO) boosted company sales by negotiating a barter transaction structured to avoid triggering materiality levels.

Result: In May 2000, VF Corporation bought North Face for $2 per share. (Knapp, 2013)

Question1
Should auditors insist that their clients accept all proposed audit adjustments, even those that have an "immaterial" effect on the given financial statements? Defend your answer.
AnswerforQuestion1:
• Auditors should not insist that clients accept all proposed audit adjustments.
• Auditors are not perfect and clients should therefore have the right to reject proposed audit adjustments.
• If a client does not accept a proposed audit adjustment, the auditor should generally be more suspicious as to the possibility of fraud and misstatement.

Question2
Should auditors take explicit measures to prevent their clients from discovering or becoming aware of the materiality thresholds used on individual audit engagements? Would it be feasible for auditors to conceal this information from their audit clients?

AnswerforQuestion2:
• Levels of materiality determine the nature, extent and timing of the substantive testing.
• Auditors should not reveal materiality levels to their clients.
• Deloitte might have considered increasing substantive testing in this area given Mr. Crawford's inquiry.
• Auditors must consider both qualitative and

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