Case Study Of The Pinnacle Company

Appendix A.2 also lists several factors that could provide opportunities for management/employees to commit fraud. One factor that could lead to fraud is if, “There is ineffective monitoring of management as a result of: domination of management by a single person or small group without compensating controls.” The auditors should have taken notice of the lack of controls and segregation of duties with respect to Phar-Mor’s

It is the susceptibility of an account balance or a class of transactions to a material misstatement, assuming that there were no internal controls. The inherent risk at Telstra is that there may be certain types of misstatements that may not be identified during the course of audit. The inherent risk associated with the audit of Telstra is ascertained based on the nature of the business. Telstra Corporation Limited have these kinds of risks:- inventory valuation risk, intangible assets valuation risk, foreign currency risk, interest rate risk, tax risk, amendment risk and compliance risk. All the above stated risks pose potential material misstatements on the financial statements and thus need to be addressed (Telstra

The objective of analytical procedures is to identify the existence of unusual transactions and events, and amounts, ratios and trends that might indicate matters that have financial statement and audit planning ramifications*. First, the auditors should consider information regarding the industry in which the client operates**. In this case, average machine setup time from start to finish is approximately six hours, which is slightly below the industry average. It means the company is efficient in preparation for production. Also, the auditors should compare client data with prior period data***. For example, days sales in receivables increased from 48.4 days (2004) to 56.3 days (2005). Though sales didn't increase a lot ,but days sales

CAS 300 requires auditors to their audit using a risk based model where the nature, timing and extent of audit procedures are based on the assessed risk of material misstatement. Pickett (2006) argues that for audits to be effective and efficient, much of the audit effort should be focused on areas that are considered to pose the highest audit risk. Additional audit procedures should be linked to individual audit assertions whereas other audit procedures need to be performed as and when needed. Thus, for an audit plan to be put in place, it is necessary for an auditor to come up with a risk profile of the client comprising an understanding of the business operating by the audit client, assess business risk and also perform its preliminary analytical review.

#3. Inherent Risk Factors; audit planning decisions. Businesses that face extreme competition are susceptible to many inherent risk factors – the measurement of the auditor’s assessment of the likelihood that there are material misstatements in an account balance before considering the effectiveness of internal control. Complex valuation issues and related party transactions are two such factors that would affect audit planning decisions. Valuation issues may lead the audit team to request more evidence, if they choose to accept the audit at all. Risks such as inventory turnover leading to potential misstatements of inventory, costs of goods sold, or obsolescence of inventory may influence the audit firm’s decision to hire outside specialists to assist in the audit. Another inherent risk factor, client business risk (competitive

At the end all the risk are finance related, because the liability’s cost money and this will have an effect in the company’s earnings, so what is important is not only to try to avoid such events but also to be prepare in case they happen and have a plan, is like the saying “Hope for the best but be prepare for the worst”.

The auditor should consider planning materiality. When a financial statement account exceeds the planning materiality, that account should be considered significant for both the audit of internal control over financial reporting and the financial statement audit. The more the account exceeds planning materiality, the greater it should be considered significant.

1. The implication of this factor is there may be an increased risk of misstatement of bad debt expense and the allowance for bad debts. The auditors may decide to assign a more experienced auditor to this audit area. In addition, the auditors will decide to increase the evidence related to the adequacy of the

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.

c. Identify inherent risks for the audit of Pinnacle using the information from Parts I and II. For each inherent risk, identify the account or accounts that may be affected.

The account with the greatest risk of material misstatement is the inventory account. Two other accounts that have risk, but do not have as much risk as the inventory account are: accounts receivable and the property and equipment account. Finally, another account that should be monitored is the short-term investments account.

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)

“Audit committee members or their agents may proactively examine areas, functions, and personnel where collusive fraud risk is reasonably likely to be perpetrated,” (Zmags). The search for fraud, even if performed in the same location multiple times, may continue until the audit committee feels confident that they have ruled out the probability that fraud is prevalent. One of the biggest risks of fraud is management override of controls, requiring the extensive search for risk in, “journal entries and other adjustments and reviewing accounting estimates for possible biases that could result in material misstatements,” (Nysscpa).

have explained that the Financial statements provide asummarized view of the financial position and operations of a firm. Therefore, much can belearnt about a firm from a careful examination of its financial statements as invaluabledocuments / performance reports. The analysis of financial statements is, thus, an important aidto financial analysis.

1. Evaluate the economics of Gulf's exploration and development program in net present value terms. How do Gulf's outlay for exploration and development compare to cash returns Gulf generates from these activities.