DHB Industries Critique
Afua Nyamekye
Liberty University
DHB Industries Critique
1. Exhibits 1 and 4 present DHB’s original 2003-2004 balance sheets and income statements and the restated balance sheets and income statements for these two-year, respectively. Review the original and restated financial statements for 2004 and identify the “material” differences between them.
I agree to the material differences that Brittani pointed out. Materiality depends on a lot of factors. Ruhnke and Schmidt (2014) states that “when determining materiality, auditors must consider both qualitative and quantitative factors” (p. 249). In the case of DBH, the materiality of the two years can be both quantitative and
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This statement is an understatement considering the number of times auditors were fired by DHB.
• Managers and employees tend to be evasive when responding to auditors inquires.
3. During the 2004 DHB audit, the company’s independent auditors had considerable difficulty obtaining reliable audit evidence regarding the $7 million of obsolete vest components that allegedly had been destroyed by a hurricane. What responsibility do auditors have when the client cannot provide the evidence they need to complete one or more audit tests or procedures? I do not agree to the fact that auditors should resign if the necessary information is not possible to obtain. The auditor should do their own investigations to the the response that they are getting from management about the where about of the documents. I also believe that the audit committee is there to help solve of these issues. Another thing that can be done is to give the market value to the products that has been destroyed and be included in the disclosure.
4. What responsibility, if any, do auditors have to search for related-party transactions? If auditors discover that a client has engaged in related party transactions, what audit procedures should be applied to
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The audit committee must certify that the company’s auditors are independent. The audit committee must approve all professional services provided to the company by its independent auditors and ensure that auditors do not provide to the company any of the specifically prohibited services identified by SOX, such as bookkeeping services. The audit committee must receive and analyze key items of information from the independent auditors. These items of information include auditors’ analysis of critical accounting policies adopted by the
The specific obligations in this case would include monitor corporate governance activities and compliance with organization policies, and assess audit committee effectiveness and compliance with regulations
However, it is expected that a good auditor would have tripped into some type of a red flag that would have brought them to the discovery of further more extreme
Auditors do not provide audit opinions for different levels of assurance. Therefore, auditors consider providing more or less assurance when modifying evidence for engagement risk to be unnecessary. However, auditors should be professionally responsible to accumulate additional evidence, assign more experienced personnel, and review the audit more thoroughly, particularly when a client poses a higher than normal degree of engagement risk. The auditor should also modify evidence for engagement risk when high legal exposure and other potential actions affecting the auditor
According to PCAOB Ethics and Independence Rule 3520 a registered public accounting firm and its associated persons must be independent of the firm's audit client throughout the audit and professional engagement period. Independence is required for all audit engagements. The auditor must be independent of an entity when performing an engagement according to General Accepted Auditing Standards (GAAS). Independence is very significant to the audit profession, because the primary purpose of an audit is to provide financial statement users with reasonable assurance an on whether the financial statements are presented fairly. The auditor’s report gives credibility to an entity financial statement and without an auditor’s report the financial statement would be consider worthless. Reliance on management for the fair presentation of a financial statement would often result with a bias and impressive financial statements that doesn’t reflect a true picture of the entity’s financial position. An auditor’s independence should not in anyway be influenced by any relationship between their client and
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
The audit committee a part of the board of directors plays an important role in preventing fraud. They are directly responsible for overseeing the work of any public accounting firm, such as PwC, employed by the company. They also must preapprove all audit services provided by the auditors.
Once the ADP Approving Official has verified the accuracy of all documentation, have the Approving official sign the front of the DD Form 1348 and the “CPU Hard Drive Certification”, if applicable, then remove the barcode label and place it on the Oracle database printout sheet.
The law requires auditors to report any fraudulent activities discovered during the course of an audit to the SEC. This is when Article I of Section 51 of the AICPA Code of Professional Conduct comes into play. The auditor may uncover illegal acts or fraud while auditing the financial statements of a company. In such instances, the auditor must determine his or her responsibilities in making the right judgment and report their discovery or suspicions of the said fraudulent activities. Tyco International is an example of the auditors’ failure to uphold their responsibilities. Tyco’s former CEO Dennis Kozlowski and ex-CFO Mark Swartz sold stocks without investors’ approval and misrepresented the company’s financial position to investors to increase its stock prices (Crawford, 2005). The auditors (PricewaterhouseCoopers) helped cover the executives’ acts by not revealing their findings to the authorities as it is believed they must have known about the fraud taking place. Another example would be the Olympus scandal. The Japanese company, which manufactures cameras and medical equipment, used venture capital funds to cover up their losses (Aubin & Uranaka, 2011). Allegedly, thei...
Work with proper authorities to right the wrongs. Admitting to authorities about the internal error found will help secure good faith. Try to take all steps suggested to work with proper authorities and minimize penalties. Legal counsel needs to investigate and secure assistance in all jurisdictions that have been affected by this situation. Progress needs to be tracked and communicated to leadership and audit teams weekly by legal counsel.
in arriving at audit opinion. Obtain audit evidence that is sufficient and appropriate is one of the most important steps that auditors should make and that is crucial in shaping the overall standard governing audit evidence. Audit evidence should be properly documented to ensure that the objective of the audit was achieved. If the objectives were not achieves, the working papers must contain documentation of failure. Also, the use of experts could be considered as audit evidence and auditors must know when their expertise is exceeded. This study therefore suggested that further empirical work should be done on the impact of evidence on audit
So the first question that should be asked is why should an audit be done in the first place? According to the Clarified auditing standards on the AccountingWEB website they have determined the following information as critical in defining what an audit is and why it’s important.
As per ISA (NZ) 200-A17, this ethical requirement includes the auditors integrity, objectivity, professional competence and due care, confidentiality, & professional behaviour. Integrity is an ethical attitude which includes the auditor’s honesty, accuracy, and fair practice. Objectivity is a mental attitude while carrying out the audit wherein the auditor is fair and just with all his/her work. Professional competence is the knowledge and skill of the auditor, gained through education, training and experience, while due care is a degree of care of an auditor on certain situations wherein an he/she must act diligently. Confidentiality is the commitment of the auditor not to disclose any information regarding his/her client, unless required by law. Professional behaviour means the auditor must act in accordance to the law and set of standard as a manifestation of respect to the
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.
Since every employee is afraid of the security issue regarding the job so their morale is down as they are experiencing downsizing in their organization so they might feel that they would b the next. In this situation it is recommended that internal audit department should perform its function regarding the building of confidence of employees and make sure that proper awareness has been spread between the employees that this downsizing is a strategy of reducing the cost and need not to worry for the employees who is working with honesty and integrity.
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: