A Case Of Compliance In The Internal Accounting System

A qualified financial statement contains fair representations of an organization 's financial result, condition, and cash flow which is structured to ensure the organization is in compliance with GAAP . In the standard format, an organization should follow accounting principles to comply with internal accounting systems, disclosure rules, auditor oversight, and ethics, in the event, the above-mentioned principle does not meet, an audit failure may occur. An auditor failure may result as the request of clients and senior partners did not stand firm to refuse an unethical request from the clients. I will discuss a case of audit failure due to incompliance in the internal accounting system 's disclosure rule and firms ' right to refuse risky clients

According to James R. Doty, PCAOB Chairman 's comment( Washington, 2012) on the E&Y and its partners case "These audit partners and Ernst & Young - the company 's outside auditor for more than twenty years - failed to fulfill their bedrock responsibility," (Washington, 2012) said James R. Doty, PCAOB Chairman " The auditor 's job is to exercise professional skepticism in evaluating a public company 's accounting and in conducting its audit to ensure that investors receive reliable information, which did not happen in this case" ( Washington, 2012). In the audits of Medicis 's Dec.31, 2005, 2006 and 2007 financial statements in connection with 2008 inspection of E&Y audits of Medicis( Washington 2012), the PCAOB Division of Registration and Inspection staff found E&Y 's acceptance of the company 's accounting for its sales returns reserve questionable. E& Y indicated that Medicis 's reports for its sales returns are not conforming with the U.S. generally accepted accounting principles, the sales returns reserve was not evaluating accordingly, instead of at gross sales price, the returns were at the cost of replacing(Washington 2012). The Board also found that E&Y accepted the company 's reserve at replacement cost without support from audit evidence ( Washington