Tae Woong Kwak
Instructor: Bruce Darling
ACTG 440
Case #3
Due: June 1st 2015
1. The treasurer of a small city.
a. The risk is associated with the lack of segregation of duties and the potential of the treasurer to authorize the use of funds without any outside review.
b. Yes, the auditor should have discovered this defalcation. The defalcation would most likely have been uncovered by performing a simple analytical test of multiplying the asset amount (certificate of deposit) by the applicable interest rate and comparing it with interest income.
c. The organization had inadequate segregation of duties. The treasurer did both the investing and the recording. These activities should have been segregated.
2. The purchasing agent of a company
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This would be a difficult fraud to discover and would probably require the use of computer-assisted techniques to discover. Some audit procedures would include
1. Audit review of computer files (using computer audit tools) to list all recipients with unusual addresses, for example post office box numbers, or to identify any addresses with multiple recipients.
2. Perform a computerized review to match recipients with authorized lists of recipients and investigate any exceptions.
b. This represents the type of fraud that would be detected only if the auditor had suspicion to believe that such a fraud existed. Internal auditors might routinely perform tests such as those identified in part 3 and would then detect the fraud.
c. There is inadequate segregation of duties and independent supervision of social worker entries into the recipient list. Each addition to the recipient list ought to be verified by someone independent of the caseworker establishing the account.
4. A purchasing agent
a. This activity would be detected only if the organization required bids on merchandise and the auditor compared purchase prices with bids to determine if the lowest bid was always accepted. Alternatively, the auditor could review account balances reflecting the products purchased by the agent to determine if unusual fluctuations existed.
b. This is an extremely difficult type of fraud to uncover because the company is recording all the goods at the
Depending on the severity of the fraud, the appropriate response can be different from firm to firm. A good way to detect fraud would be to listen to information provided by a disgruntled employee. This holds true unless the employee was disgruntled before the fraud occurred. The information will probably be false and misleading because the employee has held animosity for a while. Regardless, you should take the information seriously when it is first presented to you.
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.
C.Her employing law firm can call the people on the list and offer to represent them.
f) To evaluate the material misstatement in the accounts, I think both of the consolidated income statement and the three financial statements are useful. We need to use the information properly from all the financial statements. However the consolidated income statement is the most useful one. If there is a significant change in an account balance comparing with preceding two years, the auditor will examine whether there a material misstatement exists. For instance, the bad debt expense as a percent of net sales in 2011, 2010 and 2009 are 0.56%, 0.70% and 0.69%, respectively. There should
1a) What should the auditor consider when determining whether an account should be considered significant?
b. Should Deloitte have evaluated the sales occurring after the balance sheet date of May 31,1984?
b. With blemishes on the accounting profession the size of the Enron, Worldcom, and Freddie Mac scandals, among many others, who wouldn’t think that accountants were all ‘crooked’
There are various procedures that could be taken in to account that would, if properly implemented, would have detected the frauds that occurred within the companies. There are many control risks that should have been taking regarding inventory along with preliminary audit strategies for the inventory and substantive test to be done that would have raised many flags during the typical audits as well as in depth ones.
d. “The auditor's reliance on substantive tests to achieve an audit objective related to a particular assertion may be derived from tests of details, from analytical procedures, or from a combination of both. The decision about which procedure or procedures to use to achieve a particular audit objective is based on the auditor's judgment on the expected effectiveness and efficiency of the available procedures. For significant risks of material misstatement, it is unlikely that audit evidence obtained from substantive analytical procedures alone will be sufficient (PCAOB, AS 2305.09).”
o The auditors should have done further testing should have been performed to discover the
a. The falsification of inventory count sheets. – Auditors should have observed a physical count of the inventory to check for accuracy. The case had mentioned that Eddie Antar would ship inventory to his retail stores before auditors arrived to conceal any shortages. (Knapp, 2011) These sites should have been audited unannounced in order to hinder any attempt by the client to conceal fraud.
1) Anna Thomas committed a fraudulent act by making personal charges and cash withdrawals on Rusher Automotive’s credit card. The accounting profession believes there are three conditions necessary for fraudulent behavior. (See Statement on Auditing Standards No. 99, Consideration of Fraud in a Financial Statement Audit. For additional explanation, you may want to review Buckhoff [2001].)
ONE: Identify and describe at least 2 forms of fraud techniques; what are the government agencies that monitor these kinds of fraud?
The need for trust between 2 participants is a potential threat since there is no independent verification process.
b) Must conduct his activities in good faith and in the best interests of the company.