The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in conformity with an identified financial reporting framework of Generally Accepted Accounting Principles. In essence, materiality should function as a cut-off threshold to determine the nature of the audit testing. Auditors should not reveal its materiality level to clients because clients might take advantage of it to deceive the auditors and make its financial statement better. When the Deloitte auditors are suspicious of certain accounts, they not only can’t reveal it but also make more substantive investigation into these accounts. Question 4: Existence: the
E2-1 (a) Accounting rule-making that relies on a body of concepts will result in useful and consistent pronouncements. TRUE (b) General-purpose financial reports are most useful to company insiders in making strategic business decisions. FALSE. General-purpose financial reporting helps users who lack the ability to demand all the financial information they need from an entity and therefore must rely, at least partly, on the information provided in financial reports. However, an implicit assumption is that users need reasonable knowledge of business and financial accounting matters to understand the information contained in financial statements.
Auditors should not require their clients to accept and correct all the adjustments. In the audit process, auditors are easily to hold different opinions with management over financial statements; especially over the accounts require personal judgments. But auditors are not always right, and their clients may disagree with the misstatements detected by auditors. According to AU §312.43, after timely communication between auditors and management, management has the right to disagree with the audit adjustment. Also, in Auditing Standard No.14 of PCAOB, it says the communication just gives the management an opportunity to correct misstatements.
The documents were prepared internally and this was a potential problem because they could have been altered by anyone within the company. When documentation such as delivery receipts are obtained from an independent source outside the company, it provides a greater assurance of reliability for the auditor. Grant Thornton should have used the delivery receipts as a basis but further obtained other forms prepared by external entities such as the Form 9540-1 prepared by the USDA official, and the notification form that the customs broker prepared. These forms are slightly more difficult to alter because a third party indirectly related to the company prepares them. Grant Thornton should have cross-referenced these forms and looked for any discrepancies.
The company should have been able to follow up with all venders and customers to attest to the validity of the financial statements and they were not able to do this and not able to gather the “appropriate and sufficient evidence” needed. When a client will not allow the auditor to gather evidence needed to perform a correct auditor then the opinion can be affected. The auditor cannot attest to the fairness of the financial statements if the evidence is lacking or
(b) What are the ethical issues involved in this situation? The ethical issues involved in this situation pertain to following accepted accounting principles. Violating the generally accepted accounting principles to satisfy a short-term personal or company would create misleading financial statements. This situation would therefore be unethical. Robbin Industries is jeopardizing itself by not properly reporting the advertising costs.
Without the full disclosure principle important negative financial information on company standings would likely be withheld from investors. The full disclosure principle requires that all circumstances relevant to financial statement users be disclosed. This means that all transactions must be available to the readers of a company’s financial statements. The important of full disclosure is to protect the people involved in an organization by requiring companies to provide all necessary
Just like a bank account, if you can see on-line where your money is going then you can better avoid overdrawing your account. For your credit report, if you can see when a negative remark hits your credit report you can make sure to fix it so that it does not report negative again. If a fraudulent remark is reported on your report then you can also dispute the claim sooner so that it doesn’t affect your report long term. Consumers have the right to know exactly what is being told about them from business to business. If it is going to affect their lives in such a great way then they should be allowed to view their report free of charge any time they
Separate Transaction reasoning: There are three main reasons why the Veritas shares should be divested in a separate transaction. The first one is to escape tax. Separating the deal in different transactions, and using a tax-free stock swap, implies that stocks are not sold ( if company as a whole were to be sold ) , therefore escaping from a huge tax liability bill. The second one it’s obvious. The value to the separate transitions would be higher than a combined one.
If a CPA or CPA firm first serves as a consultant then as the given entity’s auditor, it is auditing its own work. In that way, nobody else is actually going to check whether a certain accounting treatment is compliant with GAAP. Different opinion resulted from different understanding about an issue would not be raised. Moreover, generally speaking, human beings are reluctantly to admit their mistakes. The CPA or CPA firm would at least have reputational interest in the financial report that it “managed”.