1. Identify the control objectives that would be satisfied by the recommendations the internal auditors proposed during the 2014 audit. Explain how each objective would be met by the recommended procedures. One satisfied control objective is the completeness of the transaction. Using a receipt creates a written record of the transaction. Because receipts are pre-numbered, each receipt is paired with a specific check or amount of cash. This allows there to be a reconciliation between the total deposited at the bank, and total recorded on the receipts. Pre-numbering also aids with the existence objective. It prevents someone from throwing the receipt away because you can easily see that there is a missing receipt. A third objective is a segregation …show more content…
The purpose of using segregation of duties is to prevent a person from committing fraud. The tasks performed by Sally, violate the principle of segregation of duties because she was performing the entire cash recording and handling function. Sally collected the copies retained by the physician, by the cashier, and she prepared the daily deposit. There was no oversight to hold her accountable for what she was doing and reporting.
3. (a) Briefly explain the auditor’s responsibility regarding fraud in a non-public company audit. According to AU-C Section 240 paragraph .05, when conducting an audit in accordance with GAAS, an auditor is responsible for obtaining reasonable assurance that the financial statements are free from material misstatement due to error or fraud (2012, December 15). To obtain reasonable assurance, the auditor is responsible for maintaining professional skepticism, considering management’s ability to override controls, and recognizing that audit procedures for detecting error may not be effective in detecting fraud according to paragraph .08 (2012, December
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An incentive to misappropriate assets can exist when an individual is living beyond their means (2012, December 15). One red flag was Sally’s lifestyle. Shortly after starting at the CHS, her husband suffered a serious back injury at work, leaving him unable to work. A few years later, one of her children was involved in a car accident resulting in large, uninsured medical bills. Sally’s salary was never above $40,000. Despite these factors, her family was able to build a modest home in 2009 based on her salary alone. Sally had an incentive to embezzle since her salary alone could not cover all of these costs. According to AU-C Section 240 paragraph .A7, a misappropriation of assets is often accompanied with misleading financial statements (2012, December 15). A second red flag was when the new director of the CHS believed that money was missing. Based on a fiscal analysis, he knew that the profit margin percentage had not changed, but somehow net profits were decreasing even though revenue and expenses were both increasing due to servicing more students. This unexplainable scenario should have led management to consider the possibility of
Appendix A.2 also lists several factors that could provide opportunities for management/employees to commit fraud. One factor that could lead to fraud is if, “There is ineffective monitoring of management as a result of: domination of management by a single person or small group without compensating controls.” The auditors should have taken notice of the lack of controls and segregation of duties with respect to Phar-Mor’s
Describe how you would conduct the audit process, incorporating the analytical procedures you would use to investigate selected business transactions?
With different industry definitions and viewpoints, fraud can be a tough issue for audit committee members to grasp for oversight purposes. The legal obligations of audit committee members have intensified because their standard duty of care and loyalty to the entity has increased in light of management fraud activities.
The auditing firm Coopers & Lybrand was accused of failing to perform a proper GAAS audit. One strategy the auditors could have performed was to follow the trail of revenue vs expenses. The auditor should have notice large sums ($10 million) of revenue going into one particular expense (Suppliers/Inventory). Considering Phar-Mor filed that they lost money in fiscal year 1984 and 1985 and they never cleared
Describe what you believe is implied by the term “engagement risk.” What are the key factors likely considered by Deloitte and other audit firms when assessing engagement risk? How, if at all, are auditors’ professional responsibilities affected when a client proposes a higher than normal degree of engagement risk?
Lower the risk of employees mis-ringing items, for example, just to complete the transaction and keep customers from waiting.
The aim of this report is to develop an audit plan using the 2007/2008 annual reports of the WesFarmers. This report will provide an understanding of the underlying concepts of an overall audit strategy. This strategy will bring forward the direction and scope of the WesfFarmers audit plan. This report will address five major points these are as follows:
SAS no. 99 and AU 316 require that an auditor detect fraud if it results in materially misstated financial statements (AICPA, 2007 and PCAOB ,2012). While no other rules require the CPA or auditor to detect fraud, statements of professional conduct such as the AICPA’s Principles of Professional
B) I think the auditors should have equal responsibility for detecting material misstatements due to error and fraud. It’s their job to make sure the financial statements are as accurate as possible. Although it may be hard to check all the information from a company it’s the responsibility of the auditor to sign off that everything is in check.
The GAAS require an auditor to exercise due professional care, to adequately plan its audit, to sufficiently understand a business’s internal structure, and to obtain sufficient evidence to reach reasonable conclusions. KPMG allegedly failed to adhere to the GAAS by having an inexperienced audit team,; failed to challenge New Century management for unreasonable estimates; failed to test the repurchase reserve despite evidence of internal control weaknesses and apparently inaccurate estimates of
1. The two biggest concerns relating to possible fraud for the motel part of the business are: a) The couple failing to record hotel guest stays in order to steal the cash paid. By not recording the hotel stay their cash reconciliations would be clear.
A1. Examples of circumstances where the auditor may consider it necessary to include an Emphasis of Matter paragraph are:
thus minimizing the amount of currency that the Company has on hand at any point in time during the week. Additionally, the use of the bank on the daily basis facilitates the control of cash because it creates a double record of all bank transactions - one by the Company and one by the bank. Also we recommend that all receipts be deposited in the
The entity should ensure, honest, legal and ethical act. There should also be code of conduct mentioning how to behave during work, not to cheat or steal but if it happens then strong action would be taken.
Employees today can see variation as an opportunity rather than a risk. Tim M. and Timboon F., were the ones who observed that change is truly in the present business environment and if done properly, it can aide the growth of business.