SuperFund, a client of our accounting firm’s New York office, is considering purchasing a piece of unproven oil and gas property from Mountain Resources, a client of our Denver firm for $42 Million dollars. We know that the value of the land is $9 million and we know that no resources have been found after extensive testing by Mountain Resources, which forced us to advise Mountain Resources to write down the value of the land from $15 million to $9 million. There are many issues that can be recognized as potentially damaging to both our accounting firm (the firm) and our client SuperFund which need to be addressed before we consider whether to sign off and approve the transaction.
1) SuperFund could unknowingly risk realizing a significant
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A significant loss of financial assets due to the write down could negatively affect SuperFunds’s overall financial position, as wells as negatively affect the financial position of the shareholders.
c. SuperFunds, being a large investment company, most likely utilizes a significant amount of outside capital to do business, and a loss of this magnitude could affect their professional reputation and impair their ability to raise capital for any future transactions since they could lose credibility for not doing sufficient due diligence prior to making the purchase.
2) Since we are aware of the fair value of the property as we prepared the financial statements for Mountain Resources, any lack of comment on our part could be considered a lack of due professional care. Due professional care demands a recognized level of responsibility upon each professional within the firm to observe any issues that may affect the client. (PCAOB, n.d.)
3) Our silence on the transaction could be considered implied approval of the purchase by SuperFunds since the firm is aware of the failure of Mountain Resources to actually find oil on the property. If and when recognized by SuperFunds, we risk our professional relationship with SuperFunds due to the potential risk of loss they will
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The negative impact could extend to the following:
1) First and foremost, it would be a violation of Independence rules to offer any nonattest services to SuperFunds including any expert services unrelated to an audit. According to the AICPA’s Guide to Independence, Chapter 8, General Requirement 2, a firm “…may not assume management responsibilities or even appear to assume management responsibilities.” (AICPA, 2015)
2) There is an expected measure of independence between offices of the same firm, as each office has its own clientele and operates essentially independently. Information could be shared on a need to know basis, for example if someone in the New York firm was also a member of the audit team of Mountain Resources, but this doesn’t appear to be the case. Essentially it would be impossible for the firm to maintain
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.
In this critical analysis I will review the failures of negotiation for a contract renewal between TexasAgs Oil Company and Cousins Corporation. The key failures identified were: planning the negotiation, identifying BATNA, role
... for the audit service, but it has earned even more for consulting and other activities. Accounting firm fought off attempts to limit or stop them from carrying out consultancy work for clients of the audit; they insist that there is no real conflict of interest.
Many businesses that sell seafood had to cut back on it for the past few months. It has been since April that businesses are now selling shellfish back on the menu for a somewhat reasonable price. A major incident occurred just two days before Earth Day. The incident is well known as the Deepwater Horizon oil spill, or as many others call it, the Gulf of Mexico oil spill. The Deepwater Horizon drilling rig along the Gulf of Mexico is an oil-spill that resulted from an explosion that is under contract with BP, leading up to over million barrels of oil spilling into the Gulf of Mexico. This incident has led to many controversies. Arguments in discussion are whether or not we should continue to drill offshore, what exactly went wrong, and why none of the safeties were unable to activate.
Many sites across the country that were once used for industrial, and/or, commercial use have been abandoned by the companies who used them. Some of these sites are contaminated; however, some of them are merely perceived as being contaminated. In those cases, the sites have been linked to big industry, or nearby sites. In the past, any such site has been avoided or ignored as a possibility for redevelopment. This situation is caused largely by federal and state environmental laws and court decisions that impose or imply potentially serious liability. The circumstances surrounding this uncertain liability has encouraged businesses to build in previously undeveloped and non-urban areas, that are referred to as greenfields, where they are confident that no previous industry has been active. A report from the General Accounting Office finds that: "As states and localities attempt to redevelop their abandoned industrial sites, they have faced a number of obstacles, including the possibility of contamination and the associated liability for cleanup." This situation has lead to a number of far-reaching problems including social, economic, and enviro...
You have asked your opinion as to whether the plans to pay our outside auditors $500,000 of the next year for business consulting advice and $200,000 to prepare our tax returns presents an ethics issue.
Indeed, crises occur, inevitably, throughout society; emerging due to some form of accident, miscalculation, or possibly just random chance. One such example is that of the Deepwater Horizon Oil Spill, also known as the BP oil spill, occurring on April 20th, 2010. To clarify, the event is known as the largest marine oil spill in history, killing eleven people, and discharging nearly 5 million barrels of oil into the Gulf of Mexico. Certainly, the crisis spawned a substantial amount of outrage, backlash, and controversy due to the calamitous effects of the incident. Through unambiguous efforts, BP (British Petroleum) attempted to calm the public’s reaction to the situation by using strategically sophisticated skills in public relations. Through my analysis, I will assess the ways in which BP attempted to manage the crisis with regards to the ethical values portrayed, as well as the overall effectiveness of the responses. Therefore, I will commence by providing background through a brief
In this assignment the topics comprise of Fracking and Stakeholders involvement, Supply and Demand and how that is effected through increase in energy prices. Also a detailed depiction of Carroll’s Model and how energy companies utilize this. As a final point a detailed reflective statement is needed, and the focus is how government involvement impacts on the supply and price of energy to businesses.
However, in terms of an audit firm, it may not pay much attention to the audit procedures since they are always the same and the firm cooperates with its client for several decades. Subsequently, the firm or auditors may hold their client’s shares so that they would like to make an extra income by creating accounting to enhance the financial statements. Finally, when the firm provides other service like taxation and management consultancy to their clients, the auditors may rely too heavily on the other services income and are reluctant to risk losing a client because of unqualified audit opinion although these services, sometimes facilitate the performance of other work by knowing sufficiently about the operations of their
PwC (2012) points out that mandatory firm rotation causes massive costs which outweigh the receiving benefits from it for the audit firm. One significant cost is that there is a loss of cumulative knowledge which auditors have about their clients. This will lead to an ineffective audit working process and an unfamiliar working relationship with directors, audit committees and regular management of the companies. In this case, it will make auditors have too limited time to gain more specific and comprehensive information about the companies, which increases the audit failure risk and reduces the audit quality (Sakel et al., 2012).
Independence clearance process must be completed prior to accepting audit engagements for these entities. KPMG International has Sentinel™ which is a KPMG’s web-based global conflicts and independence checking system that helps in this evaluation.Any potential independence or conflict of interest issues are required to be documented and resolved prior to acceptance.
often provides advice and consultancy services for key stakeholders, internal audit will often struggle to
‘Public accounting firms – required study on the potential effects of mandatory audit firm rotation; report to the Senate Committee Banking, Housing and Urban Affairs and the House Committee on Financial Services’, US General Accounting Office, Washington, 2003.
...h 30). Panel urges government of Canada to improve disclosure requirements for investors and the Canadian extractive industry Retrieved from http://www.share.ca/files/07-03-30%20-%20Roundtable%20Advisory%20Report%20Press%20Release.pdf.
...d depth to effectively mitigate bribery and corruption risk. The inclusion of a legal expert within the audit committee could greatly assist the audit committee in their risk oversight responsibilities, including ways in dealing with regulators to minimise the company’s risk exposure. Furthermore, with the combination of financial and legal experts, the diversity of backgrounds and experiences could help the audit committee to foster greater constructive discussion and penetrate deeper into business issues.