Auditing and Assurance WA2

As a researcher in this community, use evidence and logical reasoning to support your claims. Additionally, respect the information and opinions provided by other healthcare professionals.

The different types of evidences which can be used are, Task Statements, Work Product/Work Evidences, Observations, Supplementary Evidences, Questionnaires, Professional Discussions and also Witness Statements.

The former CEO of DHBI, David Brooks ("DB"), misrepresented DHBI's financial statements, mislead the independent auditors in order to conceal his fraudulent transactions and he misappropriated DHBI's assets and funds for personal expenditures.

evidence obtained from an independent source, such as a bank, is considered more reliable than

* Checking the information against reliable sources, including the National Practitioner Data Bank and the American Board of Medical Specialties

There are various procedures that could be taken in to account that would, if properly implemented, would have detected the frauds that occurred within the companies. There are many control risks that should have been taking regarding inventory along with preliminary audit strategies for the inventory and substantive test to be done that would have raised many flags during the typical audits as well as in depth ones.

Choosing wisely between reliable and unreliable sources is important because one would not want to waste time on unreliable sources that give out false information. Most importantly if its for a large project or for a school assignment.

In the early 1980 the consumer electronics industry was growing at an explosive pace. Between the 1981 and 1984 the total sales for the industry doubled. To support increasing sales massive amounts of inventory has to be procured, marked up and sold to consumers. Inventory becomes the biggest asset a retailer has. As part of the audit planning processes the inspection of the inventory system and verification of the actual inventory numbers should have been a priority. Crazy Eddie was able to inflate its financial results by fraudulently altering its inventory counts and was able to conceal these activities from the auditors for several years.

The chief executive of the company was closely working with the vendors whose confirmations were vital in the auditing work and hence they could have submitted false confirmations. The auditing firm established a national risk management program for its clients and so national reviews were done to identify the high risk items in the financial statement. The vendor allowances were particularly high but they were not documented. As such, the auditors were supposed to demand for the documentations and compare them with the real figures. It is however noted that most of the documentations received were non-standard and this could have led to a different audit report given that vendor allowances were earlier identified as a high risk area. Inventory management was found to be poor especially in the allowances for inventory reserves. The audit firm was therefore obliged to carry out a thorough evaluation of the inventory reserves and determine whether it was reasonable. The valuation was also supposed to include all classes of inventory but for the case of the company, the evaluation excluded instances where no sales had been made. Hence, this evaluation could not accurately represent the position of the inventory reserve in the company. (Waters,2003)

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.

a. The falsification of inventory count sheets. – Auditors should have observed a physical count of the inventory to check for accuracy. The case had mentioned that Eddie Antar would ship inventory to his retail stores before auditors arrived to conceal any shortages. (Knapp, 2011) These sites should have been audited unannounced in order to hinder any attempt by the client to conceal fraud.

Upon review of the facts given from the case, there is fraud that is transpiring in regards to Back-In-Time and Dewy Knownun and Howe, Inc. (DKH). The main issue presented in this case was the fact that Tonya, a CPA whom performed services for Back-In-Time Industries Company for over five years as an Assistant Controller, was assigned to the internal controls area of the Accounting Department for the publicly traded company. Tonya did have to sign a Non-Compete and Non-Disclosure Agreement upon employment. According to the facts, Tonya discovered that per the company’s method for processing invoice payments, even though it appears that the invoice was paid, there is a delay in payment to most, if not all, of the vendors and creditors. The company is 18-24 months behind on some payments, and long-time vendors are threatening to cut off the company’s line of credit and stop delivering products needed for the company’s production.

Following the risk assessment procedures, substantive procedures are designed and conducted to detect material misstatements of relevant assertions. Substantive procedures include analytical procedures and tests of details. Analytical procedures involve evaluations of financial statement information by a study of relationships among financial and nonfinancial data. Tests of details may be divided into three types. One test is the test of account balances to address whether there are misstatements in the ending balance of an account. In the case of Crazy Eddie, auditors should have put greater attention to inventory and accounts payable accounts. The second test is a test of classes of transactions to determine whether particular types of transactions have been properly accounted for during the period. Crazy Eddies fraudulently classified these transshipping transactions as retail sales to inflate its sales revenue and continue growth at existing stores. A key ratio for retailers is to compare growth in existing stores to growth from new stores. The third and final test is a test of disclosures to evaluate whether financial statement disclosures are properly presented. Crazy Eddie prepared bogus debit memos of over $20 million to understate accounts payable.

| * David should keep a straightforward and honest relationship with MAL. * David integrity will be compromised if these errors are discovered.

* Objectiviteit (Het niet toelaten dat het professioneel of zakelijk oordeel van de accountant wordt aangetast door een vooroordeel, belangentegenstelling of ongepaste beïnvloeding door een derde.).