Nextcard Case

In: Business and Management

Submitted By paperplane
Words 386
Pages 2
Anton Chaney-Harris
2/12/2015
ACCT 4420

Knapp Cases – NextCard

1. Should auditors evaluate the soundness of a client’s business model? Defend your answer.

The auditors don’t have the full responsibility of looking over the client business model. But they should a good understanding of the client’s business model and industry, this way they can develop more accurate expectations for financial statements assertions.

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 that engagement?

The three examples of risk factors are pressure, opportunities, and rationalizations. The pressure factor grew when NextCard wanted to improve growth as rapidly as possible. They tried to extend a $1 Billion dollars of credit to customers, while knowing they were making no profit. The Internet bubble, giving the huge demand of public accounting firms, created the opportunity factor. The internal control was poor as well giving the opportunity for fraud. The third risk factor or rationalizations is related to Lent and the executives of NextCard. When the selling price rose from $20 per share to $40 per share, they saw the opportunity to become instant millionaires. Which didn’t make some of there decisions seem so bad at the time. Also that eventually from themselves making so much money that their company would provide a profit somewhere down the line. So they just kept promising and hiding their losses and financial statements until things turn around.

3.What are the primary objectives an audit team hopes to accomplish by preparing a proper set of audit work papers?

By preparing a proper set of audit work papers, the audit team ensures that an audit plan was properly follow, and that the account balances and events were properly audit. These work…...

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