Case #1 - Advanced Auditing

In: Business and Management

Submitted By robneverforget
Words 634
Pages 3
An anonymous caller seeks help from her former university professor. The caller thinks that the company that he is working for only three and one-half month is committing a fraud. The main reason that the caller is worried is because he is the controller of the company and he has to sign the quarterly statement of his privately-held company. Those quarterly statements are for the bank that his company has the line of credit, those statements have to look good so that the bank approve their credit. There are two big problems in the case. The first one is the as he started on the company he had to sign the closing of the prior fiscal year. If the fraud was being made in the last year, he could be treated like an accessory to the fraud because he signs the statements. The other problem is that the CEO and CFO, the highest in command, are the ones that are committing the fraud.
I would recommend that the caller has to report the fraud to the FASB. The Financial Accounting Standards Board (FASB) has been the designated organization in the private sector for establishing standards of financial accounting that governs the preparation of financial reports by nongovernmental organizations. Those standards are officially recognized as authoritative by the Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants. If the caller continues to work in the company he could get caught committing the fraud and could go to jail. There are two risks if he resigns immediately. The first one is that he already signed the year-end state, and he could serve as an accessory if the fraud was committed that year. The second one is that he could get retaliation for his former co-workers and don’t get work in any other company. The SBA will be a perfect source to seek advice. They are designed to aid and protect the public. The SBA is the perfect…...

Similar Documents

Principle of Auditing Chap 1

... CHAPTER 1 The Role of the Public Accountant in the American Economy Review Questions 1-1 The “crisis of credibility” largely arose from the number of companies that restated their previously issued financial statements as a result of accounting irregularities and fraud. Especially responsible were the very visible Enron and WorldCom fraud cases. Both companies filed for bankruptcy and constituted the largest companies in American history to do so. The extent of the accounting irregularities and fraud being investigated and disclosed brought into question the effectiveness of financial statement audits. In addition, the criminal conviction of Arthur Andersen, LLP, one of the then Big 5 accounting firms, on charges of destroying documents related to the Enron case brought into question the ethical standards of the profession. 1-2 Assurance services are professional services that enhance the quality of information, or its context, for decision-making. The two types are: (a) those that increase the reliability of information and (b) those that involve putting information in a form or context that facilitates decision-making. 1-3 A financial statement audit is, by far, the most common type of attest engagement. The overall assertion, made by management, most frequently is that the financial statements follow generally accepted accounting principles. 1-4 A large corporation with securities listed on a stock exchange is required by the rules of the stock......

Words: 5462 - Pages: 22

Advanced Auditing

...1. Discuss whether or not CPAs who provide accounting, taxation, and related services to small business have a responsibility to serve as the “moral conscience” of their clients. The accounting profession requires ethical behavior in order to maintain the public trust. Ethical problems and dilemma arise when there is a conflict in fulfilling the moral duties or obligations and self interest. Therefore the CPA and public accountants are required to act in the line with the standards and code of ethics. According to the Utilitarian theory the action is considered as ethical if it results in achieving the greatest good to the maximum number of people. The AICPA principle of professional conduct requires that members should act with responsibility, in public Interest, objectively and independently, with integrity and due care towards the professional and technical standards to deliver the quality services. A profession is considered as a group of specialized people who posses skill based upon their impenetrable knowledge and thus they are expected to act in the best interest of public. According to the IFAC code, the responsibility of the professional accountant is not to satisfy the needs of the employer or the client but to serve the public interest. Adhering to the above expectations and professional requirements, the CPAs should serve as the moral conscience of their clients. When the CPAs come across any activity of the client which is not ethical they should discuss......

Words: 1508 - Pages: 7

Ac503 Advanced Auditing Unit 2 Case Study

...Unit 2: Case Study - The North Face, Inc. Julia Harmon AC503 – Advanced Auditing Unit 2: Case Study – The North Face, Inc. 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 answers. The auditor would not be able to insist that their client accept all proposed audit adjustments. The auditor must advise management, the Board of Directors and the audit committee of all proposed adjustments and advise them of what the effect of the adjustments will have on the financial statement. The omission or misstatement of an item in a financial report is material if, in the light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item. (SAB 99). If after determining if the omission or misstatement is material, then the auditor should insist the adjustment be made. If the client refuses, then the auditor should issue a qualified opinion. 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 e feasible for auditors to conceal this information from their audit clients? No the auditor should not take explicit measures to prevent their clients from discovering or becoming......

Words: 458 - Pages: 2

Advanced Auditing

...propose that overvalued firms engage in stock-financed acquisitions in order to obtain hard assets at an effective discount. This discount comes at the expense of the target’s long-term shareholders, so their theory relies on different stock price performance horizons for the managers of the two involved firms.1 Rhodes-Kropf ∗ Pavel Savor is at the Wharton School, University of Pennsylvania. Qi Lu is at the Kellogg School of Management, Northwestern University. We would like to thank John Graham (the Co-editor); an anonymous referee; Torben Andersen; Philip Bond; Joshua Coval; Janice Eberly; Kathleen Hagerty; Carin Knoop; Arvind Krishnamurthy; Andrew Metrick; Michael Roberts; Paola Sapienza; Erik Stafford; Rene Stulz; Luis Viceira; Beverly Walther; and seminar participants at Boston College, Emory University, Harvard University, Massachusetts Institute of Technology, Northwestern University, University of Notre Dame, and University of Pennsylvania for many valuable comments and discussions. We are especially grateful to Malcolm Baker, Kent Daniel, Michael Fishman, Todd Pulvino, Andrei Shleifer, and Jeremy Stein for their help and support. Any remaining errors are our own. 1 One way to shorten the horizon of the target firm’s managers is to compensate them for deal success. Hartzell, Ofek, and Yermack (2004) report that targets receive lower acquisition premia when their chief executive officers enjoy extraordinary payouts. Another option is to choose as targets firms whose......

Words: 18293 - Pages: 74

Auditing Cases

.... . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounting Fraud, Litigation, and Auditor Liability instructor resource Manual — do not coPy or redistribute instructor resource Manual — do not coPy or redistribute enron corporation and andersen, llP analyzing the fall of two giants inS tr uc t ional o b je c t ive S [1] c a s e 4.1 Mark S. Beasley · Frank A. Buckless · Steven M. Glover · Douglas F. Prawitt [2] [3] To help students understand what happened at Enron Corporation and how Andersen’s involvement with Enron led to the accounting firm’s downfall. To enhance students’ appreciation of the importance of understanding an audit client’s core business strategies. To develop students’ understanding of the role of confidence, reputation, and trust both in the corporate and auditing professions. [4] [5] [6] To provide a venue for exploring professional issues relating to auditor independence and the provision of non-audit services for clients. To introduce students to the current debate on rules- versus principles-based accounting standards and related implications for the auditing profession. To actively involve students in considering the challenges facing the accounting profession and in evaluating alternative courses of action for overcoming these obstacles. KEY FACTS ƒƒ Enron entered the year 2001 as the seventh largest public company in the U.S., only to exit the year as the largest company to ever declare......

Words: 33542 - Pages: 135

Advanced Auditing

...reports. This has been proven by the fall of many multinationals and the audit pioneers, Andersens. This is one of the causes of audit fraud and it is also seen that as the auditors face an enormous challenge as they enter the twenty-first century, they should be willing to change their attitudes towards their clients. Professionalism should be in the forefront, and an overhaul in the concept of “true and fair” could probably be the solution to harmonisation of the economy. Research limitations/implications – This paper lacks statistical data on the views of the authors. It is based purely on secondary data. Practical implications – Provides awareness to the auditors, corporations and general public on the necessity to revamp the existing auditing practices. This can help the auditors not only to be professionals, but also to be seen as professionals. Originality/value – This paper provides scope for research in this area to identify whether the overhaul concept is acceptable. If yes, what should the new concept be? If no, what is the solution to the existing public outcry? Keywords True and fair view, Auditors, Fraud, Reports Paper type Research paper The changing role of the auditors 249 Introduction The concept of “true and fair view” (TFV) is well known to accountants as well as auditors. It has been the fundamental basis of audited accounts for many years. The legal requirement to show a TFV first appeared in the UK Companies Act of 1948. Since the issue of Statement......

Words: 12579 - Pages: 51

Auditing Cases

...Auditing Cases instructor resource Manual f our th e d itio n Mark S. Beasley Frank A. Buckless Steven M. Glover Douglas F. Prawitt do not coPy or redistribute Prentice hall Upper Saddle River, New Jersey ta b l e s e ct ion o f co n t e n t s 1 2 client acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . S o l u tionS inc lu de d in t h iS Section 1.1 Ocean Manufacturing, Inc. 3 The New Client Acceptance Decision s e ct ion Understanding the Client’s Business and assessing risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 S o l u tionS inc lu de d in t h iS Section 2.1 Your1040Return.com Evaluating eBusiness Revenue Recognition, Information Privacy, and Electronic Evidence Issues . . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.2 2.3 2.4 Dell Computer Corporation Evaluation of Client Business Risk Flash Technologies, Inc. Asher Farms Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Risk Analysis and Resolution of Client Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Understanding of Client’s Business Environment s e ct ion 3 Professional and ethical issues . . . . . . . . . . . . . . . . . . . . . . . 59 S o l u tio nS inc lu de d in t h iS Section 3.1 3.2 3.3 3.4 3.5 A Day in the Life of Brent Dorsey Staff Auditor Professional Pressures Nathan Johnson’s Rental Car Reimbursement Solving Ethical......

Words: 162000 - Pages: 648

Advanced Auditing Final Review Case Note

...Final Exam Review Practice Case IPI Case: Required: 1. Identify Accounting System Issues * System implementation * Lack of training * I: people try to override the system, inaccurate reporting * R: The company who installed the system needs to be contacted and hold training session for employees * Glitches * I: inaccurate reporting, create room for error * R: Contact the company again and get them back and give them responsibility to fix the glitches 2. Identify Control Issues: * Understaffing people are overworked, may get sloppy * R: Hire more staff * Lack of segregation of duties, bookkeeper does the bank rec and A/R ledger * R: Get someone else to do one of those duties * Mismatch b/w what’s shipped and what’s recorded as revenue since sales reported based on what they are supposed (when order is confirmed for shipment) but Louis goes down to the shipping department and adds a few more COGS is correct but revenue is not * R: Base revenues on actual quantities shipped * Year end cut-off error – Revenue: Takes 3 weeks to get the orders out but actg department records sales based orders * R: System is changed so that revenue is recorded only when shipment is confirmed, send shipping log to the actg department so they know 3. Policy compliance * Costs capitalized to inventory * IPI’s accounting policies state that only the rental......

Words: 1267 - Pages: 6

Case Study Unit 5 Ac503 Advanced Auditing by Knapp

...1. First thing that is suspicious and worries me is not having any gain or loss. It is concerning the situation when you are not sure about what are the odds in knowing exactly the book value when you sold it. So, upon reviewing the gains and losses on disposals, you would be a bit alerted from an analytical procedures view. You would review the asset ledgers for large transactions and those near year end. You would inquire about what you did with the old registers when you noticed the new ones, like large purchase and when you saw that the purchaser was also the vendor who sold the new ones, you would be alerted. 2. A great method to find the violations is to look to the qualities and characteristics of financial reports. This exaggerated the price of the new registers so they were recorded at above fair value, which is a violation of GAAP. You are never allowed to record an asset above the fair value, this is not a faithful representation. Also, the transaction for the sale of the used registers was not a good faith arms-length transaction violated neutrality and reliability and therefore should have been examined for authenticity. That is, there were no real procedures for the used items and so the gain or loss was not properly calculated in accordance with GAAP. The transactions were also not faithfully disclosed because it was reported as a sale and purchase instead of a purchase and disposal of worthless used items. This was misleading to the reader and makes the......

Words: 479 - Pages: 2

Advanced Auditing

...mind that permits the expression of a conclusion without being affected by influences that compromise professional judgment, thereby allowing an individual to act with integrity and exercise objectivity and professional skepticism Independence in Appearance – the avoidance of facts and circumstances that are so significant that a reasonable and informed third party would be likely to conclude, weighing all the specific facts and circumstances, that a firm’s or a member of the audit team’s, integrity, objectivity or professional skepticism has been compromised Professional Judgment Framework – For each process step, track, organize and evaluate consideration sufficient to capture relevant information to support your judgment. Process steps – 1. Define the issue What is the primary issue? 2. Gather the facts What is the applicable guidance? What information do you need to address the issue? Is the information you have obtained relevant and reliable? 3. Perform the analysis How does the applicable guidance apply to the issue? Have you identified and evaluated the key assumptions? What are the reasonable outcomes and possible alternatives? 4. Make the judgment What is your conclusion based on the analysis performed? Does your conclusion make sense in light of the business purpose and underlying economics of the issue? 5. Document the judgment Is the documentation sufficient to support your judgment? Can another professional understand how you reached your conclusion (including......

Words: 2125 - Pages: 9

Auditing 1

...Question 1 (7 marks) The following are independent statements concerning certain auditing issues. Required Indicate whether you agree or disagree with each statement, and explain your reasoning. a. An adverse report would be issued when an auditor was unable to observe a company’s inventory count at the beginning of the year because the auditor was appointed during the year. (1 mark) b. When encountering a violation of generally accepted accounting principles in an audit of financial statements, the auditor will decide between an unmodified report, a qualified report, or a disclaimer of opinion report. The main consideration will be the materiality of the matter in question. (1 mark) c. A public accountant is not required to be independent of an entity to perform a compilation engagement for that entity. In such a situation, however, disclosure of a lack of independence is not required. (1 mark) d. If there is significant doubt and material uncertainty that an auditee will continue operating in the future and these doubts have been properly disclosed in the notes to the financial statements, the auditor is required to include an emphasis of matter paragraph in the audit report. (1 mark) e. When replaced as auditor, the outgoing auditor has a professional responsibility to reply promptly to an enquiry letter from the incoming auditor, but is not required to allow the incoming auditor access to the most recent year’s audit working papers. (1 mark) ......

Words: 1982 - Pages: 8

Case #1 - Advanced Auditing

...An anonymous caller seeks help from her former university professor. The caller thinks that the company that he is working for only three and one-half month is committing a fraud. The main reason that the caller is worried is because he is the controller of the company and he has to sign the quarterly statement of his privately-held company. Those quarterly statements are for the bank that his company has the line of credit, those statements have to look good so that the bank approve their credit. There are two big problems in the case. The first one is the as he started on the company he had to sign the closing of the prior fiscal year. If the fraud was being made in the last year, he could be treated like an accessory to the fraud because he signs the statements. The other problem is that the CEO and CFO, the highest in command, are the ones that are committing the fraud. I would recommend that the caller has to report the fraud to the FASB. The Financial Accounting Standards Board (FASB) has been the designated organization in the private sector for establishing standards of financial accounting that governs the preparation of financial reports by nongovernmental organizations. Those standards are officially recognized as authoritative by the Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants. If the caller continues to work in the company he could get caught committing the fraud and could go to jail. There are two risks if...

Words: 634 - Pages: 3

Case Advanced Auditing

...pengungkapan sebagai bagian dari prosedur penilaian resiko. · Melakukan uji pengendalian yang berhubungan dengan pengungkapan ketika penilaian awal atas resiko pengendalian berada di bawah maksimum. · Melaksanakan prosedur substantive untuk memperoleh assurance bahwa semua tujuan audit dicapai untuk informasi dan jumlah yang disajikan dan diungapkan dalam laporan keuangan. TABEL 24-1 Tujuan Audit Penyajian dan Pengungkapan| Tujuan Audit|Contoh Prosedur Substantif| Keterjadian serta hak dan kewajiban|Mereview kontrak | Kelengkapan|Menggunakan daftar pengungkapan| Klasifikasi dan kemampuan untuk dipahami|Mereview laporan keuangan| Ketepatan dan penilaian |Merekonsiliasi jumlah yang dimasukkan dalam catatan kaki utang panjang dengan informasi yang diperiksa dan didukung dalam kertas kerja audit utang jangka panjang auditor.| II. REVIEW KEWAJIBAN KONTIJEN DAN KOMITMEN Kewajiban kontijen (contingent liability) adalah potensi kewajiban di masa mendatang kepada pihak luar untuk jumlah yang tidak diketahui dari aktifitas yang telah terjadi. Diperlukan tiga kondisi agar suatu kewajiban kontijen ada : 1. Terdapat potensi pembayaran ke ppihak luar atau kerusakan aktiva (asset) yang diakibatkan oleh kondisi yang ada. 2. Terdapat ketidakpastian mengenai jumlah pembayaran atau kerusakan di masa mendatang. 3. Hasil akan dipecahkan oleh satu atau beberaa kejadian di masa mendatang. TABEL 24-2 Kemungkinan Keterjadian dan Perlakuan Laporan Keuangan| Kemungkinan keterjadian......

Words: 3034 - Pages: 13

Auditing Case

...Keith Parkinson 2/3/15 Auditing Case 1: Merry-Go-Round Merry-Go-Round (MGR) is a clothing retailer that was founded in 1968. The company’s locations were in malls that targeted the youth and teen market. In the late 1980s, the company was listed by Forbes magazine as one of the top 25 companies. By the early 1990s, sales fell due to stiff competition from other retailers. Facing bankruptcy, the company hired turnaround specialists from Ernst and Young (E&Y) to help overcome the financial crisis. However, the company filed for Chapter 11 reorganization and due to that a group of 9,000 creditors filed a lawsuit against E&Y saying they were the main reason for MGR’s decline. First of all, E&Y violated GAAS first standard that states, “The audit is to be performed by a person or persons having adequate technical training and proficiency as an auditor.” The turnaround team included inexperienced personnel that included a retired consultant, a partner with little experience in the U.S. and with retail firms, and two recent college graduates. I would say the first standard of Field Work was violated because the work wasn’t adequately planned and there was no supervision. The leader of the team took an eight-day vacation at critical point during the engagement. Also, while store closing were key to MGR’s survival, only 230 of 1,434 stores had been closed and MGR still operated two stores in some malls. Last, the cost-cutting strategy called for only $11 million......

Words: 611 - Pages: 3

Advanced Auditing Complete Class

...Advanced Auditing Complete Class To purchase this tutorial visit here: http://mindsblow.us/question_des/AdvancedAuditingCompleteClass/2663 contact us at: help@mindblows.us ACC 562 Advance Auditing Entire Course All Weeks Discussions, Quizzes and Assignments ACC562 Complete Course week 1 to week 11 ACC 562 Week 1 Discussion "Unbiased Reporting" Please respond to the following: • Analyze the need for unbiased financial reporting. Based on your analysis, determine at least two (2) drivers that may cause financial reporting to be biased. Provide a rationale to support your response. • Analyze the audit opinion formulation process and suggest at least one (1) improvement to the process to strengthen audit opinions. Provide a rationale to support your suggestion. ACC 562 Week 2 Discussion "Topic of Discussion” Please respond to the following: • Analyze the changes made to corporate governance rules since the implementation of the Sarbanes–Oxley Act of 2002. Based on your analysis, formulate an opinion on whether or not these changes are sufficient in preventing financial fraud. Provide a rationale for your response. • Debate it! Audit committees are an effective tool for detecting and preventing fraud. Provide a rationale for your response. ACC 562 Week 3 Discussion "Application of Ethical Framework” Please respond to the following: • From the case study, use the ethical framework to propose a course of action that you would take concerning the audit. Provide a......

Words: 27733 - Pages: 111