Audit Report

Material misstatement shall be treated and assessed by the auditors as significant risks. And the auditor shall gather an understanding of the entity’s

After reviewing the financial information of the Tech Tennis, USA, there was a concerned due to some unusual changes in the company’s accounts. Financial statements play a crucial part in the determination of the progress of an organization. It assists the relevant personnel to identify whether the company is making profits or making losses. Although unethical, some companies will tend to deliberately misrepresent some of their financial statement information to create a false impression of the company’s success. There are various techniques that organizations utilize to manipulate their financial statements such as overstating their revenues (Bierstaker, Brody, & Pacini, 2006). In addition, some organization will tend to inflate their sales without considering their cash flow amount that the organization has acquired which will be a red flag to investigate. Consequently, financial statements provide vital information that helps both internal and external users to understand the position of the organization. Some companies in an attempt to continue in the market, they end up manipulating their financial statements that create an illusion of the success of the organization.

Moreover, NutraCea also inappropriately documented revenue on a bill and hold Transaction in regards to a $1.9 million sale of product to ITV Global, Inc. in the 4th quarter of 2007. Which resulted in a misstatement of NutraCea’s operating loss of by over 89% in the 2nd quarter, 17.6% in the 3rd quarter and close to 7% in total all for the fiscal year 2007. To put the icing on the cake NutraCea misstated Form 10-K for the fiscal year 2007.

1. Fraudulent financial reporting – reporting false financial performance and overstating the company’s earnings and falsifying the level of liabilities to attract investor’s contributions.

The purported business value of $65,500 misled by defendants, the value was not from the accountant’s advice. [pg 56,57,b,c,RD].

This subject company in this case study is WoolEx Mills. The top management team at the Mills had to act fast to prevent the accusations charged upon them, so that they may venture deep into the United States market. In the process, they had to act in a way that will present the company’s financial statements; cash flows in a way that they did not show any suspicious fraudulent activities. The type of fraud in this case study is known as manipulation of accounts which involves the act of offering the accounts in the way they are not in reality.

Auditors are responsible for evaluating accounting estimates. A part of this responsibility is to obtain sufficient evidence that all accounting estimates are reasonable and properly disclosed. In Ligand case, because the underestimation of future sales returns at the end of 2003 was significant and auditors found it material, they had to perform the audit procedures to indicate if Ligand had the ability to make reasonable estimates and eventually have the company restate its financial statements of 2003 last quarter. However, Fazio failed to exercise the due professional skepticism and issued an unqualified opinion on Ligand’s financial statements which was not appropriate.

What happened: Millions of dollars in losses were split among the 129 stores and put as an expense on each stores balance sheet ->. In order to balance the expenses, management had to boost its assets by inflating inventory -> The auditor Coopers&Lybrant checked only 4 stores out of 129 in order to safe their money. In addition, they told senior management which stores they will check -> Phar-Mor prepared the inventory in accordance with its balance sheet -> The auditing firm was unable to uncover the fraud.

The 1933 Security Act stablished the issuance of registration statements for companies doing initial public offerings, this document relies greatly on the accountant’s job results. In the case of Charlene, she is being sued under the Section 11 of the mentioned act, which establishes a liability to accountants when the statements presented contain an untrue material fact or omission that mislead the recipient, in this case the investor.

The closing for inventory was leading to exaggerate profits since been removed from the expense of the statement of income and reported as asset on the balance sheet. For successful the fraud, it should

MD and two more director (part of BOD) were former partners of company auditors. And other bod alleged that they were misled as the true financial positions of the respective companies.

Phar-Mor Inc. fell prey to greed from the top. Unfortunately, the auditing firm assisted the organization with the conspiracy to defraud the users of financial reporting, the government, and the stakeholders. The chief officers used the funds for personal usage and appropriated funds to functions that were not related to the organization business. The financial statements were riddled with material misstatements and fraud acts of theft were blatant. For example, the senior financial officers including the CEO grossly over stated inventory to hide losses.

If a reasonable person would conclude after considering the possibility of further undetected misstatements that the misstatement either individually or when aggregated with other misstatements would clearly be immaterial to the financial statements. If a reasonable person could not reach such a conclusion regarding a particular misstatement, that misstatement is more than inconsequential

Integrity might cause problems in this case as the main persons in this organization are family members and there are also family members with high functions in the bank and JRW Realty with which Prefab has close business relations. Moreover, the members of the audit and compensation committee are not all independent of the firm and therefore, the likelihood of fraud or material misstatements in the financial statements is quite high. The profitability of the engagement to the auditor should be considered as well. Due to the extensive investigation the auditor has to do, especially due to the relationships between the people at the top management and the independence of the audit and compensation committee, the profitability might be a concern. Furthermore, from the analysis of the business risks of accepting the audit it can be concluded that there are several severe problem areas in which fraud or material misstatements in the financial statements can take place. At the Prefab Sprout Company the risk of fraud or material misstatements is considered to be very high and therefore, the engagement should not be accepted.

This report is based on the history and collapse of a big Australian giant West Point group of companies. West point Corporation Pty Ltd was the head company of the western Australia based West point Group of Companies ("West point Group") which was primarily engaged in property development and collecting finance for that purpose. In this report, causes of the collapse of the company specially the role of auditors in the collapse will be discussed. This report doesn’t only throw light on the collapse of West Point group of companies but also look at the conduct of the auditors of another well reputed auditing firm KPMG which as a consequence of this negligence had to pay compensation for the damages caused to investors of West Point group of companies. The reason of choosing West Point group of industries to write a report on is that it involves the conduct of two big companies and ASIC action against both of the companies.