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Nextcard

In: Business and Management

Submitted By deanfredrickson
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NextCard, Inc. 1. No, it is not the job of the auditor to evaluate the soundness of the business. The auditor is not concerned with how successful the business is run or if it is run efficiently. The auditor is responsible for planning and performing an audit to obtain reasonable assurance that the financials are presented fairly, and are free from material misstatement, whether by error or fraud. 2. There are definitely fraud risk factors present in the 2000 NextCard audit including: rapid growth compared to competitors, lack of an internal audit team, and pressures to report a profitable quarter. NextCard was able to obtain growth so fast because, they were offering rather generous credit policies which attracted many people who could not get credit elsewhere. As a result, NextCard ended up loaning out over one billion dollars and their customers’ average balance was around $2,000. The executives at NextCard also continued to promise profits to the public, even after they sold a large amount of their shares. After posting more losses, they started to understate the allowance for doubtful accounts in order to improve financials. With these risks present, it should have given the audit team an indication that fraud was present. Since accounts receivable is such a large account in a credit card business, more substantive work should have been done. This would help accurately calculate the allowance for doubtful accounts. There should have also been more evidence gathered about revenue since the company had yet to post a profitable quarter, and would have pressure to overstate revenue. NextCard was a company in a new industry, which is uncharted waters, so there must be more work done to ensure proper financial statements. If the audit team would have looked through the financials they would have seen that NextCard was acting illegally by understating their...

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