Next Cards Essay

1275 Words6 Pages
The case is about an internet based company to offer Internet users a faster way to obtain credit cards. The misleading research of possible market credit condition let them blindly extended the credit card users. It came out to be a wrong strategy which brought the company huge losses. Also NextCard took the company public with stock price initialing selling for $20 per share regardless of large losses for each reporting period. Since the stock market burst and NextCard no longer had access to the debt and equity markets. The credit card customers proved to be extremely high risks and resulted in large credit losses for the business. Once the large class-action lawsuit was launched and SEC began investigating, Robert Trauger of E&Y the audit engagement partner for NextCard called Oliver Flanagan his top subordinate on the 2000 NextCard audit to request revision to the prior year audit workpapers. Robert and Olive altered the report, however, Mullen retained a diskette with original workpapers and Flanagan obtained the diskette. Olive informed Trauger that it was destroyed but instead it was given to federal authorities. 1. Should auditors evaluate the soundness of a client’s business model? Defend your answer. I don’t think an auditor should evaluate the soundness of a client’s business model. As an independence auditor, client’s business model is the core concept of a firm. There is no regulation to rule that auditors should evaluate the soundness of a client’s business. However, AU Section 311 rules that audit firm has to gain knowledge and understanding of the client’s business operations (PCAOBUS, 2012). An auditor should have a comprehensive understanding of the client’s business and industry to develop a valid expectation about its financial statements. For instance, if the average profit is 10 million of a certain industry, the profit of 10 billion
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