Audit procedures are a set of detailed instructions written to obtain sufficient audit evidences to perform the company’s audit report. Audit procedures must be carefully planned and written because it is used as the guidelines to collect audit evidences.
Other than walk-through test that had been suggested by the expertise for Grant Thornton to discover the misstatement, preliminary analytical procedures are the best audit procedure to be performed by the auditors in this case. To better understand the clients’ business nature and to assess clients’ business risks, performing preliminary analytical procedures are the best choice an auditor would have. This method provides an indication on company’s performance based on the clients ratios
…show more content…
Compliance test consists of depth testing, inspection, observation and computation audit procedures which are to determine whether the transactions or processes performed in a company based on the applicable rules and laws. The applicable rules and laws that will be tested by the compliance auditors can be the creation of the company itself based on corporate by-laws, policies, plans and procedures. Compliance audit procedures will reveal the weakness in the company’s internal control and can be corrected on a timely basis. In accordance to Jack Greenberg, Inc’s bankruptcy, if Grant Thornton had performed compliance test, the weakness in computing the prepaid inventory could be sensed by the auditors. As per the case, Steve Cohn, JGI’s financial controller had modernized the company’s accounting system via computerized system. However, he failed to modernize the prepaid inventory accounting module because Fred had insisted to do so. If and only if, Grant Thornton had implement this audit procedure, the auditors would have pushed Fred to obey the company law to accept Steve’s computerized accounting module. This would have been lead to reveal Fred’s manipulation over the inventory at an earlier
Arens, Alvin A., Elder, Randall J., and Beasley, Mark S. (2012). Auditing and Assurance Services:
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.
It is obvious that the Auditors cannot check all the inventories in every store. However, The extent of the negligence was too extreme. Moreover, There are factors contributed to the fraud. Phar-Mor hired a member of the external audit team and gets information on which store is going to be audited, that affects the independency of the existing external auditors. Sarbanes-Oxley Act of 2002 states “It shall be unlawful for a registered public accounting firm to perform for an issuer any audit service required by this title, if a chief executive officer, controller, chief financial officer, chief accounting officer, or any person serving in an equivalent position for the issuer, was employed by that registered independent public accounting firm and participated in any capacity in the audit of that issuer during the 1-year period preceding the date of the initiation of the audit.’’ (Sarbanes-Oxley Act of 2002,section 206). In addition, SEC prohibits the role of such individuals in financial
The Deloitte & Touche auditors should have first and foremost determined a materiality level for North Face’s complete financial statement. The auditors would have planned the materiality to the maximum amount in which they believed the financial statement could be misstated and would not affect their decision. The auditors would have reviewed and determined the extent and nature of the risk assessment procedures, and in addition, they would have identified and assessed North Face’s risk of material misstatement. Furthermore, the auditors would have determined the nature, timing, and extent of all further North Face auditing procedures. Lastly, the auditors should have reviewed all financial statements to ensure they were presented fairly and truthfully in conformity with the generally accepted accounting principles. The Deloitte & Touche auditors should have set a benchmark to assist them in determining the materiality of the financial statements for North Face. They could have utilized the assets, liabilities, equity, income, and/or expenses of the income statement; they could have also used North Face’s financial position, financial performance, or cash flows
With every business activity come opportunities for fraudulent behavior which leads to a greater demand for auditors with unscathed ethics. Nowadays, auditors are faced with a multitude of ethical issues, and it is even more problematic when the auditors fail to adhere to the standards of professional conducts as prescribed by the American Institute of Certified Public Accountants (AICPA). The objective of this paper is to analyze the auditors’ compliance with the code of professional conduct in the way it relates to the effectiveness of their audits.
The Newham Company is a publicly traded company that recently has had a change in executive management due to an inappropriate bonus structure based on company performance. As this type of bonus structure often leads to material misstatement of facts resulting in falsified financial reports, the new management at Newham has commissioned SNHU INC. to conduct an audit which assesses their risk of misstatement. The audit to follow will be broken down into three parts: Overall business risk, sample audit plan and a report of recommendations based audit results.
According to the article authored by Mark Rupert, what are the seven best practices in the roles and responsibilities of an internal audit function?
At first, the organization has already set up a compliance plan, and it is committed to ensuring that it will comply with the entire set standards. To illustrate, it works effectively to recognize and predict any corporate integrity agreement risk in the organization. On the other hand, the company is committed to providing training to the employees on various issues (Vaidya, 2013). Also, there is a copy of corporate integrity agreement and policies related to it in each department, and there is a certified trainer does a round to explain any thing that is not understood in the agreement monthly.
The oversight responsibilities of the board, the CAE lacking of expertise or broad understanding of financial controls and responsibilities, and the understaffed internal audit functions lacking of independence and direct access to the board of directors contributed to the absence of internal controls. To begin with, the board should be retrained to achieve financial literacy to review financial reporting. Other than attending formal meetings, the board of directors should be more involved with the management. For the Audit Committee, the two members who were recruited as acquaintances to Brennahan need be replaced with experts who are more sufficiently knowledgeable about accounting rules beyond merely “financially literate”. Furthermore, the internal audit functions need to expand with different expertise commensurate with the expanded activities of the organization, testing financial reporting rather than internal controls from an operational perspective. The CAE should be more independent and proactive to execute audit plans, instead of following orders from the CFO, and initiate a direct and efficient communication between internal audit and audit
In today’s day and age, there is a lot of news that is related to corporate accounting fraud as companies intentionally manipulate their financial statements to show a better picture of their financial health. The objective of financial reporting is to provide financial information about a company to its various stakeholders such as investors and creditors so that these stakeholders can make decisions accordingly. Companies can show a better image of their financial well being by providing misleading information. This can be done by omitting material information from the books or deceitful appropriation of assets such as inventory theft, payroll fraud, check forgery or embezzlement. Fraudulent financial reporting will have an effect on the This includes but is not limited to; check forgery, inventory theft, cash or check theft, payroll fraud or service theft.
Auditing has been the backbone of the complicated business world and has always changed with the times. As the business world grew strong, auditors’ roles grew more important. The auditors’ job became more difficult as the accounting principles changed. It also became easier with the use of internal controls, which introduced the need for testing, not a complete audit. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. Computers played an important role of changing the way audits were performed and also brought along some difficulties.
Overall, the company is having ineffective controls regarding different departments and in the whole organization. An effective internal audit department should be established within the organization which should test the effectiveness of these controls on regular basis and make it sure that all controls are working effectively and efficiently with the different departments of the organization. Also the Internal auditor should implement the most effective processes and measures to prevent and detect the fraud, corruption and non compliance with the laws and regulations in the organization. Establishment of internal audit committee would be helpful in this regard which comprises of executive and non executive directors.
Audit is a process to evaluate and review the accounts and financial statement objectively. We can divide it into internal auditors and external auditors. Internal auditors have a inner knowledge of business process. Auditor has access to the much confidential information and all levels of management. But they may lose their judgement and they are not acceptable by the shareholder. “The overall objective of the external auditors is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to report on the financial statements in acco...
The major characters of the tradition audit are all information what is needed by auditors are on the paper and the manual calculators and without high communication technology. Auditors usually were limited by the place in the paper time. When a several people are working on the same auditing project for a client with offices in cities across the country, even worldwide, it takes a lots all time those auditors get the information which they need from the client, even there is risk paper information disappear for many reasons. on the another hand, mail paper information increase the auditing cost. The mistake caused by the manual calculators inevitably, no matter how fixed auditors concentrate on recalculate is, after all auditors are human. The global business become major in the modern business world, some example, several auditors who are in different locations are working a same auditing project, or auditors are in different city even country with the client, when there is issue among these auditors or between auditors and client, they only can communicate with each other by phone or be together and have meeting. Phone call can not make sure information been watched in the same time when the voice is talking about the issue, but having a meeting takes time and money make all people together, it increases auditing cost.
The success of a company is very dependent upon its financial accounting. In accounting there are numerous Regulatory bodies that govern the accounting world. These companies are extremely important to a company because they set the standards when it comes to the language and decision making of a company. These regulatory bodies can be structured as agencies, associations, commissions, and boards. Without companies like the Security and Exchange Commission (SEC), The Financial Accounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB), Internal Accounting Standards Board (IASB), Internal Revenue Service (IRS), and other regulatory bodies a company could not make well informed decisions. In this paper the author will look at only four of them.