An audit manager has led the audit of Topaz Ltd for the last three years. Evidence of a fraud involving the falsification of timesheets and supplier invoices to a significant value have been found. Senior management within Topaz are implicated. Discuss the extent to which the external auditor should be criticised for not discovering this fraud.
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An audit manager has led the audit of Topaz Ltd for the last three years. Evidence of a fraud involving the falsification of timesheets and supplier invoices to a significant value have been found. Senior management within Topaz are implicated.
Discuss the extent to which the external auditor should be criticised for not discovering this fraud.
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- John Wells, CPA, is planning the audit of CVG Services Inc. As a result of his risk assessment procedures, Wells has identified several fraud risks. a. Explain in detail how Wells might respond to risks of material misstatement of the financial statements due to fraud. b. Describe the auditors’ communication responsibilities in situations in which the auditors believe fraud has occurred.Assessing the risk of fraud in a financial statement audit is a difficult audit judgment. Auditing standards require the auditor to perform several audit procedures to accumulate information to assess the risk of fraud. You are the in-charge auditor responsible for planning the financial statement audit of Spencer, Inc. Two new staff auditors are assisting you with the initial audit planning and have asked you the questions below. Please summarize your responses to these staff auditor questions: a. What is the purpose of the audit team's brainstorming session? b. Who should attend the brainstorming session and when should the session be held? c. What is the role of the two staff auditors in the brainstorming session? d. What is the auditor's responsibility under auditing standards for detecting fraud? e. What must the auditor document in the working papers related to the brainstorming session?Assessing the risk of fraud in a financial statementaudit is a difficult audit judgment. Auditing standards require the auditor to performseveral audit procedures to accumulate information to assess the risk of fraud. You arethe in-charge auditor responsible for planning the financial statement audit of Spencer,Inc. Two new staff auditors are assisting you with the initial audit planning and haveasked you the following questions.Briefly summarize your response to these staff auditor questions:a. What is the purpose of the audit team’s brainstorming session?b. Who should attend the brainstorming session and when should the session be held?c. What is the role of the two staff auditors in the brainstorming session?d. What is the auditor’s responsibility under auditing standards for detecting fraud?
- John and Kayla, two audit staff associates are discussing potential telltale signs to watch out for during an audit, which may indicate an increased fraud risk. Which of the following would represent an increased fraud risk? The firm they work for has a company policy which dictates that no clients with related parties or related party transactions will be taken on The clients that their firm takes on have robust and effective whistleblowing systems, and the anonymity of the informant is protected throughout. The clients their firm works with have historically had low turnover and strong employee retention in key positions. One of their clients has recently installed a new system of internal control which the client's staff are currently familiarizing themselves with and are not yet fully proficient in.Post, CPA, accepted an engagement to audit the financial statements of General Co., a new client. General is a publicly held retailing entity that recently replaced its operating management. In the course of applying audit procedures, Post discovered indicators of fraud. After further investigation, they determined that a warehouse employee was stealing inventory.1) Discuss fraud materiality thresholds and explain whether the specific fraud case outlined above can be considered inconsequential. 2) Discuss Post's responsibilities regarding required communications if the fraud was determined to be:a) Clearly inconsequential.b) Not clearly inconsequential. 3) Discuss auditor obligations regarding client confidentiality and allowed disclosures relating to fraud.“The deliberate fraud committed by management that injures investors and creditors through materially misleading financial statements. The use of incentive systems and opportunities for fraudulent behavior are associated with higher fraud risk assessments by audit partners; however, the most important factors are senior management ethical attitudes and dishonest communication from management with the external auditor.” Required: Compare and contrast financial statement fraud with asset misappropriation. Why is it important to analyze the relationship between a company and its auditors?
- Management fraud (fraudulent financial reporting) is not the expected norm, but it happens from time to time. In the United States, several cases have been widely publicized. They happen when motives and opportunities overwhelm managerial integrity.a. What distinguishes management fraud from a defalcation?b. What are an auditor’s responsibilities under auditing standards to detect management fraud?c. What are some characteristics of management fraud that an audit team should consider to fulfill the responsibilities under auditing standards?d. What factors might an audit team notice that should heighten the concern about the existence of management fraud?e. Under what circumstances might an audit team have a duty to disclose management’s frauds to parties other than the company’s management and its board of directors?For each situation below identify and explain the threat and one fundamental principle that is comprised.- An accountant has compiled the financial statements for a client and was requested to also audit the statements.- The financial director of Baboo Ltd is very aggressive and dismissive of the audit function and audit team- A chartered accountant values a client’s shares and then leads the negotiations on the sale of the client’s company- The chartered accountant fails to report a fraud of a client because the perpetrator is a close friend and he issympathetic to the interest of his friend.Which of the following internal control policies, when absent, would increase the opportunity for fraud A. Mandatory vacations for employees with access to assets B. The absence of any of the given choices increases the opportunity for the fraud C. Job applicant screening for employees with access to assets D. Appropriate segregation of duties or independent checks 2. Whom should the auditors contact when they suspect a fraud? A. Either the senior management or the audit committee B. Senior management C. Audit committee of the board of directors D. Expected perpetrators of the fraud
- A competent auditor has done a conscientious job of conducting an audit, but because of a*clever fraud by management, a material fraud is included in the financial statements. The fraud, which is an. overstatement of inventory, took place over several years, and it covered up the fact that the company’s financial position was rapidly declining. The fraud was accidentally discovered in the latest audit by an unusually capable audit senior, and the SEC was immediately informed. Subsequent investigation indicated that the company was actually near bankruptcy, and the value of the stock dropped from P260 per share to PIO in less than 1 month. Among the losing stockholders were pension funds, university endowment funds, retired couples, and widows. The individuals responsible for perpetrating the fraud were also bankrupt. After making an extensive investigation of the audit performance in previous years, the SEC was satisfied that the auditor had done a high-quality audit and had followed…When planning the audit, the auditor must make enquiries of management. Which one of the following is not an appropriate enquiry of management about fraud? a.The auditor should ask management if they are personally engaged in fraudulent activity, including fraudulent financial reporting and misappropriation of assets. b.The auditor should ask about management's communications with employees about ethical behavior. c.The auditor should ask management about any communications with those charged with governance regarding its processes for identifying and responding to the risks of fraud in the entity. d.The auditor should ask management about their assessment of the risk that the financial statements may be materially misstated due to fraud.Jamie is an auditor. While preparing to audit his client, FoodCourt, he finds a weakness in the company's internal control that might suggest that the company has a higher than normal risk, and revenue may have been recorded in the wrong period. Given this weakness, what information should be communicated to management?