Nextcard Case Essay

6) The CPA firm accounting system was flawed and this was shown when the CPA firm failed to test the system. This system was sold to district by the CPA firm performing their audit. It

2. What procedures can auditors perform to detect fraudulent entries made during the consolidation process?

* From the e-Activity, choose one (1) of the eight (8) steps in the Clarified Auditing Standards–Learning and Implementation Plan. Based on the step you have chosen, analyze support for the action plan proposed, and make at least two (2) recommendations that would improve support of the action plan.

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?

Properly prepared audit documentation should provide 1) a basis for planning the audit, 2) a record of evidence collected and results of tests performed on the evidence, 3) a basis for determining the appropriate audit report and 4) a basis for review by supervisors of the work performed. Achievement of these four purposes aids the auditor in providing reasonable assurance that the audit was conducted in accordance with the auditing standards.

2. Evaluate Andersen’s claim that their problems on the Enron audit were due to a few “bad partners” in the organization. If you disagree with this claim, discuss what you think were the root causes of the problem. I do not believe Andersen’s claim. I believe that they had full knowledge of what was happening at Enron. I believe that Enron was paying off the auditors (staffers) in the Houston office. I believe they were

3. Research auditing standards and describe the typical procedures that an auditor would perform in auditing a fair value estimate such as the

1. List three types of consulting services that audit firms have provided to their audit clients in recent years. For each item, indicate the specific threats, if any, that the provision of the given service can pose for an audit firm’s independence.

This memo was included in the audit working papers, but the working papers did not include any additional documentation from the engagement team. Required: For both Little Drummer and RockOut, determine whether the engagement team performed adequate and appropriate audit procedures considering management’s assumptions. (Note that your focus should be on the substantive audit procedures performed, not the accounting treatment nor the control testing.) If the engagement team did not perform adequate and appropriate procedures, describe what additional procedures you would have performed.

The audit scope, procedures performed, transaction testing completed, and findings of the review should be documented and the documentation and work papers should be available for review by the Branch’s examiners. Any violations, policy or procedures exceptions,

SUBJECT: Beginning the Audit Report (Engagement letter, Engagement checklist, Outline of timeframes and milestones of the audit)

(Public Accouniting Oversighe Board, 1972) Fiedelman violated the due professional care standard when he allowed the misstatement and margin recognition to be posted. The misstatement was already noted but he himself should have been aware that the margin was not permitted and that the misstatement should have been corrected. It is also concerning that the increased sales from $90,000 to $3.9 million was not investigated more thoroughly, again indicating Fiedelmans lack of due professional care. Fiedelman also violated AU 326 Evidential Matter. With the violations of so many auditing standards the SEC had no other choice but to sanction Fiedelman. (Knapp, Rittenberg, Johnstone, & Gramling, 2012)

List FOUR audit procedures that an auditor will normally perform prior to attending the client’s premises on the day of the inventory count.

Ernst and Young should have been concerned about the management overrides that were taking place to “fix” the numbers. The auditors should have been suspicious of large adjustments and should have further tested and required documentation for these adjustments.

The critical issue in this case study is the responsibility of auditor. Should Ernst & Ernst be civilly liable for defrauded investors of First Securities Company of Chicago under Securities Exchange Act of 1934 under Rule 10b-5.