Case 6-29
The Audit of Accounts Payable uncovered many deficiencies in the sufficiency and appropriateness of the evidence gathered, as it relates to Grande Stores. Before analysing each account, it should be noted that evidence acquired by an auditor should be persuasive enough, whereby any competent auditor would believe that no material misstatements exists. As Grande Stores is expanding, the auditor should adjust their audit risk, as there may now be a greater potential for fraud and error to take place.
McClure Advertising Credits
The first problem poses many deficiencies in the audit process. To start off with, it is not sufficient enough to take a sample size of only four test documents when over 1,100 vendors exist. If an error was able to be detected in only four test documents, than the auditor should have expanded their sample size to ensure that no actual material misstatements existed. The auditors claim that the amount was not material, but because the sample size was so small they could not make an accurate judgement. The second problem occurred when the auditor accepted phone confirmations and internally generated documents such as cash receipts to confirm that the sample material was correct. This evidence should not be accepted, because the reliability of the evidence is flawed. The best type of confirmation that the auditor could have received would have been written confirmations from the external parties. Looking at this situation, the auditor should have made a professional judgement call to determine if the evidence received was persuasive enough for him to make an accurate determination on the accuracy of the Accounts Payable. With such a small sample size, the auditor is taking on too much audit risk, and ...
... middle of paper ...
...ment made showing gratitude to the accountants that provided review services for the business since its date of incorporation.
e. Since it is the PA firm’s responsibility to conduct audits, it is a public accountant’s objective to adhere to CAS 200 whereby their objectives are to provide reasonable assurance that the financial statements are not misstated, consider the possibility of fraud or error and communicate finding in accordance with the Canadian Auditing Standards. Public Accountants are only required to provide a reasonable level of assurance when auditing financial statements. The users of the financial statements may vary. They may be shareholders, creditors or management, but the only responsibility the shareholder has, is to provide reasonable assurance that the financial statements present fairly and in accordance to a certain criteria such as GAAP.
Overall, the work performed to test the relevant financial statement assertions and the evidence gathered has led our audit team to conclude that the confirmation issues encountered may signify that a potential for material misstatement exists. For example, the existence of a line of credit in one of the Financial institutions indicates that we need to perform further investigation to assess the reliability of the findings.
The principles of the AICPA Code of Conduct should guide the work that Jose and Emily do as auditors. The principles that specifically apply to this situation are Responsibilities, The Public Interest, and Due Care. CPAs have the responsibility to “exercise sensitive professional and moral judgments in all activities.” (Mintz, p. 19)
This organization has been setting ethical standards and publishing the Code of Professional Conduct for the profession since the early 1900s. A Code of Professional Conduct is necessary for any profession to help maintain strict ethical standards. This organization is the basis of ethical reasoning in the accounting profession because of what the Code of Professional Conduct covers. The code is comprised of a preamble and six articles. The preamble and the six articles serve as a foundation to provide guidance and guidelines for accountants to overcome any emerging ethical issues with ease on a daily basis. The six articles’ purpose is to protect the public, investors, and creditors. The AICPA Code of Professional Conduct consists of: Responsibility, Public Interest, Integrity, Objectivity and Independence, Due Care, and Scope and Nature of
My appropriate way that I would do during my audit process was that I would ask questions to Toby and his accountants to provide concrete evidence of each item that include in the miscellaneous expense. My team members and I must test the selected items or all the elements from the miscellaneous account by reviewing all the supporting documents such as receipts and invoices. Moreover, the audit team has to conduct the procedure to interview Toby and his staff to clarify all the suspicious about their financial statement reporting amounts. Even Betty and her team had questioned Toby and his employee several times about their miscellaneous expense, they have just realized heavily on Toby’s answers since they trusted him for having a long client relationship, and this was the reason that makes them decided not to investigate further. In my opinion, it is crucial for Betty and her team to investigate further about her client’s miscellaneous expense because it could help them to discover more inappropriate actions that Toby had done to his company’s financial statements. As a result, I think that because Betty did not practice an appropriate professional judgment as well as professional skepticism; she and her audit team have missed red flag in Toby’s fraud
There can only be so many changes to the audit process to prevent fraud. Regardless of the regulations that one may enforce, the audit process still comes down to human opinion. In a case like Satyam, an auditor performing their job to the highest standard would have most likely caught Satyam eventually. As stated in the case, misstatement of cash is one of the easiest fraudulent activities to catch. Simply requesting bank statements verifies the cash that the company actually owns.
With every business activity come opportunities for fraudulent behavior which leads to a greater demand for auditors with unscathed ethics. Nowadays, auditors are faced with a multitude of ethical issues, and it is even more problematic when the auditors fail to adhere to the standards of professional conducts as prescribed by the American Institute of Certified Public Accountants (AICPA). The objective of this paper is to analyze the auditors’ compliance with the code of professional conduct in the way it relates to the effectiveness of their audits.
According to the article authored by Mark Rupert, what are the seven best practices in the roles and responsibilities of an internal audit function?
Accounting ethics has been difficult to control as accountants and auditors must keep in mind the interest of the public while that they remain employed by the company they are auditing. The accountants should take into account how to best apply accounting standards when company faces issues related financial loss. The role of accountant is crucial to society. They serve as financial reporters to owe their primary constraint to public interest. The information provided is critical in aiding managers, investors and others in making crucial economic decisions. An accountant is responsible for any fraudulent financial reporting. Some examples of fraudulent reporting are:
The quantity of accounting fraud cases keeps on rising. Fraud is a consistent thing that will reliably be around, and in a bigger number of routes than just a single. An extensive apportion of organizations out there fight with fraud, either from within the organization, or from outside the organization. Knowing how to manage this is essential for an organization to be productive over a drawn out extended period of time. The investigation regarding the matter of accounting fraud will utilize sources from the web and the DeVry school library. The principle territory we are planning to address is accounting fraud and how it could impact an organization by answering, the who, what, when and how. Its goal is to increase the awareness
I commend your ability to grow your clientele quickly, having the forethought to hire additional CPAs to be able to handle the influx of business that is relative to the tax season, as well as hiring Lisa to provide administrative support for the office. Through the gathering of information from our discussions, interviewing staff, analyzing customer surveys, review of financial docu...
...e financial reports and statements are correct. This auditing will be conducted by auditing department of the organization, even may be done by an independent auditor who is not part of the organization, and sometimes public officials are elected. In case of unmatched consequences the organization need to give explanation on the misrepresentation of wrong statements. Auditors purpose is then to ensure that the misrepresentations are corrected, then maintain accurate, reliable financial documents and statements.
4) . One of the largest bankruptcies in history was enabled by accountants hiding debt and destroying the evidence to avoid implication (Buckstein, part 2 pgs. 1, 2, and 3). These unfortunate events led to the need for increased scrutiny and regulations, including the Sarbanes-Oxley Act (Buckstein, part 3 pg 1). This legislation inspired the creation of the Canadian Public Accountability Board (CPAB) (Buckstein, part 3 pg 1). These changes have led to an increased awareness of the need for auditor independence as well as higher standards for accounting and business in general (Buckstein, part 3 pg 1). While these measures have helped to reassure the public, there is still the question of why Accountancy is not a protected
The fundamental duty of an external financial auditor is to form and express an opinion on whether the reporting entity’s financial statements are prepared in accordance with the relevant financial reporting framework. In discharging this duty, the auditor must exercise “reasonable skill, care and caution” (Lopes, J. in Kingston Cotton Mill Co 1896) as reflected in current legal and professional requirements.
Auditing has been the backbone of the complicated business world and has always changed with the times. As the business world grew strong, auditors’ roles grew more important. The auditors’ job became more difficult as the accounting principles changed. It also became easier with the use of internal controls, which introduced the need for testing, not a complete audit. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. Computers played an important role of changing the way audits were performed and also brought along some difficulties.
No matter auditors work with technology or not, the most important thing in process of auditing is evidence. The basic framework for the auditor understands of evidence and its use to support the auditor's opinion on the financial statement. In reaching an opinion on the financial statements, the evidence gathered from the audit procedure is used to determine the fairness of the financial statements and the type of audit report to be issued. The characters of paper audit evidence are: