...Auditor’s Professional Skepticism Independent auditors function as a “public watchdog” ensuring that the information available to investors and creditors is truthful and reliable. It is critically important that independent auditors exercise professional skepticism in the performance of audits. The auditor’s role is to offer an opinion on whether an entity’s financial statements are materially free from misstatements. However, the auditor’s role in business and society is greater due to the meaning their opinion imparts. The opinion of the auditor is what indicates to investors and creditors that the information contained within is free from material misstatement. The reason that responsibility has been placed with the external auditor is the public and business community’s skepticism of the management of companies. If that skepticism isn’t demonstrated and embodied by the external auditor, they have not fulfilled their most basic purpose. Additionally, failures to employ professional skepticism could result in management misleading the users of financial statements, even when an unqualified opinion is given. When this comes to light, it could erode the trust in an accountant or firm and threaten their ability to earn in the future. In addition to the fundamental demonstration of the public’s skepticism, a failure in professional skepticism may cause the auditor to err in their judgment or in their methods. An auditor may not obtain sufficient appropriate evidence to support...
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...The Role of Experience in Professional Skepticism, Knowledge Acquisition, and Fraud Detection Recent notable instances of accounting fraud have led to regulator and public concern over the failure of experienced auditors to detect frauds prior to the issuance of a company’s financial statements. In response, the AIPCA has issued a new auditing standard, SAS 99, Consideration of Fraud in a Financial Statement Audit, in an effort to help auditors better assess fraud risk, detect fraud symptoms, and sharpen professional judgment as to whether a fraud has actually been committed in a firm. The purpose of this term paper is to examine the role of experience in increasing professional skepticism, knowledge acquisition, and ability to detect fraud. We suggest that the typical audit environment does not provide auditors with the type of experience, i.e., practice and feedback with fraud, which is necessary for successful fraud detection. Results of an experiment indicate that audit novices who have received practice and feedback with fraud detection exhibit a higher level of skepticism and knowledge about fraud and are better able to detect a fraud when it exists than individuals with typical audit experience. 1 I. INTRODUCTION The apparent inability of auditors to detect financial statement fraud has prompted regulators, practitioners, and academics to examine the question, “Why do experienced auditors often fail to detect fraud?” There are several factors that...
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...model of morality except for: A. Moral sensitivity B. One's stage of ethical development C. Moral motivation D. One's courage in making decisions 5. The actions of Sherron Watkins in the Enron case appears to reflect each of the following except for: A. Moral sensitivity B. Egoism C. Enlightened egoism D. Professional skepticism 6. Professional judgment in accounting includes each of the following attributes except for: A. Exercising due care in carrying out one's professional responsibilities B. Maintaining one's objectivity in decision making C. Maintaining one's integrity in decision making D. Acting in accordance with the moral point of view 7. In Thorne's model of ethical decision making, the instrumental virtues relate to: A. Moral sensitivity B. Ethical reasoning C. Ethical motivation D. Ethical character 8. In Cherron and Lowe's study of the link between professional skepticism and management accountants, the authors identified the importance of: A. Understanding the motivation and integrity of evidence providers B. Understanding the nature of the corporate culture C. Understanding the way in which decisions are made D. All of the above 9. The importance of framing the ethical issue in the decision making model is: A. Identify the stakeholders affected by intended actions B. Evaluating alternative...
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...Accounting 411 Quiz 1 – Fall 2011 Professor Jones Chapter 01 Ethical Reasoning Implications for Accounting Multiple Choice Questions 1. Each of the following characteristics describes the importance of integrity in decision making except for: A. Acting out of moral principle B. Being loyal to one's superior C. Having the courage to do the right thing D. Not subordinating professional judgment to others 2. Ethical relativism can best be described as a: A. Point of view that morality is relative to the norms of one's culture. B. Concept that holds that integrity should be maintained in the face of pressure by others. C. An ethical reasoning method that holds one should always act out of self-interest. D. An ethical reasoning method that holds one should always consider the effect of one's actions on others. 3. When is it appropriate to contact the audit committee about a difference of opinion with the CFO over an accounting or financial reporting manner? A. If the CFO does not agree to correct the financial statements B. The CEO supports the CFO and does not agree to correct the financial statements C. The external auditors support the CEO and do not agree to correct the financial statements D. The audit committee should always be the first to be informed about such a difference of opinion 4. An internal accountant should always take the following step after exhausting all avenues of appeal within the organization when there is a difference...
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...Midterm Exam – Summer 2011 Chapter 01 Ethical Reasoning Implications for Accounting Multiple Choice Questions 1. Each of the following characteristics describes the importance of integrity in decision making except for: A. Acting out of moral principle B. Being loyal to one's superior C. Having the courage to do the right thing D. Not subordinating professional judgment to others 2. The ancient Greeks thought of the virtues as characteristics of behavior that: A. Could lead to a good life B. Make up the "six pillars of character" C. Support the rights theory D. All of the above 3. Ethical relativism can best be described as a: A. Point of view that morality is relative to the norms of one's culture. B. Concept that holds that integrity should be maintained in the face of pressure by others. C. An ethical reasoning method that holds one should always act out of self-interest. D. An ethical reasoning method that holds one should always consider the effect of one's actions on others. 4. When is it appropriate to contact the audit committee about a difference of opinion with the CFO over an accounting or financial reporting manner? A. If the CFO does not agree to correct the financial statements B. The CEO supports the CFO and does not agree to correct the financial statements C. The external auditors support the CEO and do not agree to correct the financial statements D. The audit committee should always be the first to be informed about...
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...ISSUES IN ACCOUNTING EDUCATION Vol. 24, No. 2 May 2009 pp. 237–252 If You Need Love, Get a Puppy: A Case Study on Professional Skepticism and Auditor Independence Robert L. Braun and H. Lynn Stallworth ABSTRACT: The purpose of this teaching case is to expand students’ understanding of the concepts of professional skepticism and independence. The case is based on an actual incident and illustrates the exercise of professional skepticism by a staff auditor who finds himself in the uncomfortable situation of accusing a friend of fraud. The case demonstrates the difficult personal and professional choices that auditors must sometimes make. In analyzing the case, students consider auditor independence rules, as well as the concepts of independence in appearance and independence in mental attitude. Students are asked to identify the types of audit evidence and internal controls needed to detect and prevent the fraud, and to consider the appropriate audit response to an adverse situation. Keywords: auditing; professional skepticism; fraud; independence; internal controls; misappropriation of assets. L THE CASE ife is good, thought Will Stallard as he got into his truck that October morning. He could have been thinking of any one of a number of things—his wife of seven years, his beautiful baby girl, or his job as a staff auditor at Dykstra, Banister, and Huston (DB&H), a CPA firm with offices in Montgomery and Mobile, Alabama. Or, maybe it was the slight chill in the air and the...
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...ISSUES IN ACCOUNTING EDUCATION Vol. 24, No. 2 May 2009 pp. 237–252 If You Need Love, Get a Puppy: A Case Study on Professional Skepticism and Auditor Independence Robert L. Braun and H. Lynn Stallworth ABSTRACT: The purpose of this teaching case is to expand students’ understanding of the concepts of professional skepticism and independence. The case is based on an actual incident and illustrates the exercise of professional skepticism by a staff auditor who finds himself in the uncomfortable situation of accusing a friend of fraud. The case demonstrates the difficult personal and professional choices that auditors must sometimes make. In analyzing the case, students consider auditor independence rules, as well as the concepts of independence in appearance and independence in mental attitude. Students are asked to identify the types of audit evidence and internal controls needed to detect and prevent the fraud, and to consider the appropriate audit response to an adverse situation. Keywords: auditing; professional skepticism; fraud; independence; internal controls; misappropriation of assets. THE CASE ife is good, thought Will Stallard as he got into his truck that October morning. He could have been thinking of any one of a number of things—his wife of seven years, his beautiful baby girl, or his job as a staff auditor at Dykstra, Banister, and Huston (DB&H), a CPA firm with offices in Montgomery and Mobile, Alabama. Or, maybe it was the slight chill...
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...Executive Summary This project concerns American International Group’s (AIG) violation of PCAOB rules and auditing standards in connection with fraud on the financial statements over a two year period. As detailed below, AIG recorded loans as premium revenue through its foreign subsidiary; AIG’s audit firm Price water house Coopers (PwC) failed to detect the fraud and obtain sufficient appropriate audit evidence and exercise due professional care and professional skepticism. This is a highly outlined summary that are discussed in more detail in the following aspect. Readers are able to obtain more information on each summarized topic through reading the entire project. * Company profile * How the fraud was discovered demonstrated in timeline flowchart * PCAOB’s Ruling in summary * Fraud demonstrations in different stages * Calculations reveal how the fraud could happen * Where were the auditor * Involved Audit guidelines * Suggested Audit procedures * Recommendations to prevent such fraud Company profile Type: Public Traded Company (NYSE: AIG) Industry: Insurance, Financial services Headquarter: New York City Products: Insurance services Fortune 500: 40th largest company Forbes Global 2000: 42nd-largest public company Number of employees: approximately 65,000 (2014) Key employees: Peter Hancock (President& CEO) Website: AIG.com ...
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...Diamond Food Case Project Requirement 1 1. Manipulation of commodity cost. As a common practice in the company, management would instruct related accounting employee to decrease the commodity costs by a small incremental at a time, until the desired earning numbers for that period was achieved. 2. Special accounting treatment of grower payments. Diamond made “continuity payment” and “momentum payment” to manipulate cost to growers. These payments were claimed to be advances for multi-year supply from growers, hence the company delay the recognition of these amounts as costs in later periods. However, payments to growers were actually for the crop in prior year although Diamond insisted the payments were for current year; and growers who already cancelled their contracts with Diamond still received this payment, which suggested that these payments, in substance, should have been for previous periods. Diamond used this controversial accounting method to continuously defer part of its payments to later periods, which reduced current costs and increased net income. Conversely, Diamond also increased its current cost by making more payment, when its EPS exceeded the expectation. The “continuity payment” method was continuously applied, and it created a cost pool in future period, which gave the company room to adjust costs and expenses in accordance with the management’s goals. Requirement 2 No, both recording of “continuity” payments and “momentum” payments did not...
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...Section A: Audit Practice Part b (i): Why is the audit of cash important part of the audit? From an auditing standpoint, cash is an important account because cash transactions affect all other business and financial processes. Businesses acquire cash by selling goods or services, disposing of fixed assets, or acquiring debt or equity. The same businesses put their cash to use through purchasing, paying employees, and buying inventory. Audits are an important part of business. Cash audits check that money has been handled properly, and performance audits ascertain whether employees are doing their jobs properly. Corporations are likely to undergo tax audits to ensure proper tax reporting and withholding. Audits may be performed in-house by management or human resources, by a third-party consulting firm hired specifically to perform the audits or by IRS agents who are auditing company tax records. The audit of cash is considered an important part of an audit mainly due to almost all business transactions will be ultimately settled through the cash accounts, the audit of cash accounts also assists in the verification of other asset and liability accounts as well as revenue and expenses. Some of the investor relies on the accuracy of the cash account to evaluate the financial health of the company. They use current asset which include the cash account to compute several financial measures. Other than that, cash is the highly liquid asset in a company and it is an area of high...
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...Just for Feet, Inc. Abstract Just for Feet, Inc. (JFF), its executive vice president; Don-Allen Ruttenberg, and the company’s auditing firm; Deloitte & Touche, LLP, and its associates; Steven H. Barry, CPA and Karen T. Baker, CPA, were all found guilty, on some level, in the fraud of Just for Feet, Inc. Ruttenberg purposely gave the company’s accounting department false financial information causing the accountants to record over $5 million in fictitious accounts receivable. This, in turn, caused the income statement to be overstated by $5 million (Knapp, M., 2009). The company’s auditors Deloitte, Barry, and Baker included the false information in JFF’s 1998 financial reports. These false reports were prepared for public filing with the Securities and Exchange Commission, which resulted in shareholders of JFF to be defrauded. Ruttenberg, Deloitte, Barry, and Baker were brought to justice, and the company’s shareholders settled for $32.4 million in a class-action lawsuit (Knapp, M., 2009). Just for Feet Based in Birmingham, Alabama, Just for Feet (JFF) was established in 1977 and became a publicly traded company in 1994. Despite a period of slow growth in the retail industry, JFF expanded rapidly from 1994 to 1999. By 1998, the company’s exceptional revenue growth deemed it as the top-selling retailer of athletic shoes and apparel in the United States. In JFF’s 1998 financial statements, the company reported $689.4 million in assets, $774.9 million...
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...science (scientific theories and experiments) and only one way of cognition for religion (revelation and spiritual dialogue with God). By contrast, philosophy agrees that there are many ways of cognition, just as there are many forms of knowledge and many beginnings of that knowledge. Wisdom in my mind is the form of personal knowledge. That is why there is neither a scientific philosophy, nor a religious philosophy, but there is philosophy of science and philosophy of religion, which describe the phenomena of scientific and religious thinking. Philosophy is always personal experience and cogitation and there is no universal wisdom, which would be the same for all the people, just as there is no single understanding of happiness. 2. Skepticism is an honest search for knowledge. It is an approach to claims akin to the scientific method. It is a powerful and positive methodology (a collection of methods of inquiry) that is used to evaluate claims and make decisions. It is used to search for the (provisional) truth in matters and to make decisions that are based on sound...
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...roles can be achieved by the use of informatics or nursing informatics (Hebda and Czar, 2009). The purpose for this paper is to reflect on theories, concepts and strategies presented in NURS 6015: Information and Healthcare Technologies Applied to Nursing Practice. NURS 6015 Impact on Personal Attitude Nursing Informatics When this course started my personal attitude was one of skepticism. My thoughts were really negative and crude such as, “how is this course going to help me with my job?”, “is it totally necessary?” or “what is the importance of this course?” Now my way of thinking is one of acceptance, understanding and curiosity. New ideas pop in my head, questions begin to take shape and learning moments start to make sense. All the time spent in my clinical practice is a time for putting the knowledge learned in NURS 6015 into use. “Nurses need to be adept at using patient-centered information technology (IT) tools to access information to expand their knowledge in a just-in-time, evidence-based fashion” (Hebda and Czar, 2009, p. 7). This course has helped me understand the importance of nursing informatics in the clinical area. According to Hebda and Czar (2009) computer technology helps support all aspects of nursing. Nursing informatics has a lot of applications that support my work in the field of healthcare. It reminds me to plan...
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...Improving Recruitment of Non-traditional Students Introduction The College of Adult and Professional Studies (CAPS) at Friends University offers working and busy adults an attainable way to earn their bachelor’s degrees. Degrees can be earned through accelerated online and evening classes. Since opening in 1985, it has been the largest and most profitable of the three colleges at Friends University. Despite being the most profitable, CAPS has been impacted by a national trend of declining enrollment and increasing skepticism of the value of a postsecondary education. These two issues combined create a large barrier that is not easy to overcome. The recruitment staff for CAPS needs proven tactics to combat the declining trend and skepticism. This paper will detail the research and findings of proven tactics the CAPS recruitment team can use to combat these issues. Background In the past the post-secondary enrollment forecast has been extremely positive. According to the US Census Bureau, between the years 2000 and 2005, college enrollment grew by 15 percent. From 2005 to 2010, it increased another 20 percent. But the growth has come to a standstill. In 2013 enrollment fell yet again by two percent across the board. Because of the demographics served by CAPS, the decline can be contributed to the decrease in college-age population. This can be contributed to the economic recovery. The adults who lost their jobs during the recession or opted out of the unwelcoming job market...
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...needs of the business environment of the time. As such, auditors and the auditing profession have always played a very important role in business and, more recently, in society in general. As business in today’s world becomes more dynamic, accounting (and therefore by extension auditing) must also evolve to become more dynamic. The evolution of auditing is a complicated history that has always been changing through historical events. This can be seen in the shift in the role of external auditors from a cyclical audit approach to now more of a top-down risk-based continuous audit. The factors that have played a major role in this shift of role and responsibilities are the cycle of fraud, regulation, and compliance; and also the rise and importance of technology in the Information Age we currently live in. The combination of these two factors has had a profound impact on the auditing profession and has helped solidify its place in society as serving the public interest. This...
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