Essay on Case 5.1

777 Words May 16th, 2013 4 Pages
The Fund of Funds: Valuation of Investments

1. Arthur Andersen did not rely on competent and sufficient audit evidence in auditing the valuation assertion related to FOF’s natural resources assets. According to Paragraphs .21 of AU Section 326, to be competent, evidence must be both valid and relevant. Evidential matter obtained from independent sources outside an entity provides greater assurance of reliability for the purposes of an independent audit. However, many aspects of the National Resources Fund Account (NRFA) audit were completed by using the records of KRC instead of the fair market value. The number they used may contain errors or even fraud. Since FOF had no means of valuing the assets proposed for investment by NRFA and
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Without understanding the allocation method or amount being allocated, it would be hard to determine absolutely that profit was such a high figure.

3. Based on Paragraphs .09-.10 of AU Section 329, the primary purpose of substantive analytical procedures is to provide assurance on certain audit objectives. However, depending on the objective, analytical procedures might not be enough, and tests of details would provide a more desired level of assurance. The auditor should understand the objectives of the audit, and create a plan that best suits his/her objectives by creating a combination of analytical procedures and tests of details. If I was on the audit team for FOF, I would use the “Consolidated Sales to Industry” information since it is applicable to successfully completing the audit. For FOF, one of my audit objectives would be to provide assurance that the prices FOF was getting from vendors were at reasonable rates. Using the “Consolidated Sales to Industry” information, I would be able to see that the profits are not aligned and therefore, would need to investigate further. At this point, I could plan tests of details to further investigate the nature of these profits. An auditor has the obligation to show professional skepticism and be watchful for fraudulent activities. The heightened percentage of profits could be seen as a red flag. All of these practices fall under the