Happiness Express, Inc. Case 2.3

Also he may conduct bank reconciliations on pertinent accounts to make sure no discrepancies or misstatements are found. The auditor should also perform vertical and horizontal analysis for the income statements and balance sheets by the use of ratios.

Auditors also evaluate the client’s recording of transactions by verifying the monetary amounts of transactions, a process called substantive tests of transactions. For example, the auditor might compare the unit selling price on a duplicate sales invoice with the approved price list as a test of the accuracy objective for sales transactions. Like the test of control in the preceding paragraph, this test satisfies the accuracy transaction-related audit objective for sales. For the sake of efficiency, auditors often perform tests of controls and substantive tests of transactions at the same time.

4. Additional testing may still be required even if the error is corrected by the client. Many other errors during the month of April could have occurred on the accounting clerk’s watch that the auditor needs to do further testing to be sure no material misstatements are present. Some of these testing could be seeing what other duties the accounting clerk had during that month. Checking the client’s internal control for the entire entity could also be necessary to ensure that controls are in place for training employees that may need to fill the roles of a peer.

Elder, A. A., Beasley, M., & Elder, R. J. (2014). Auditing and assurance services (15th ed.). Upper Saddle River, NJ: Pearson.

1a) What should the auditor consider when determining whether an account should be considered significant?

Arens, A. A., Elder, R. J., & Beasley, M. S. (2013). Auditing and Assurance Services. Old Tappan, NJ: Pearson Education.

The Model of Trust Enhancement was established to enhance and maintain the public’s trust in the accounting profession. Over the last two decades, the ethics of the accounting profession has been questioned and public trust destabilized, in particular for auditors, due to the Enron debacle. The fact that an auditing firm would assist their clients with publishing an inadequate set of financial statements shows their willingness to violate laws and regulations (Sims & Brinkmann, 2003). According to the textbook, “Because trust is essential, even the appearance of an accountant’s honesty and integrity is important. The auditor, therefore, must not only be trustworthy, but he or she must also appear trustworthy” (Duska, Duska & Ragatz, 2011, p. 116). The majority of statements filed inadequately have a substantial impact on the credibility of the accounting profession as a whole. Sullivan (n.d.10) states that a CPA must possess a high level of trust, by applying professional judgment and enhancing the three trustworthy characteristics (ability, benevolence, and integrity) when resolving accounting ethics dilemmas (slide 3).

It is possible for an auditor to come to an improper conclusion because documents, like invoices, could be easily falsified if management originally handles them or if the auditor receives them from management, like in the case of ZZZZ Best and Minkow. The auditor must always confirm payments directly with the third party.

The auditor’s responsibility is not to evaluate a client’s business model but to have a sufficient understanding of the entity. An auditor needs a sound and comprehensive understanding of the client’s business and industry to develop valid expectations about financial-statement assertions.

Jefferson Multi Media Inc. is a production company that provides services to recording artists. The company has two main divisions: the audio division and the video division. The audio division is charged with executing all necessary procedures to finalize the recording process. For example, the company records the artists, adds special effects, develops concepts and designs, and finally promotes artist relations to ensure that artists are satisfied with the services provided by the company. To finalize the audio production process, the company’s audio division produces the final work in a form of audio cassettes, computerized disks, and digital sound tracks, which are transferred

Jon Fries, Fletcher Anderson, Craig Schuster, and Catherine Sprauer are the main figures in this case and they had important responsibilities in F&C International, Inc.

As auditors, they have the responsibility of not only requesting a confirmation, but they should also follow up on necessary procedures to make sure that this process is accurately completed. Their duty is to be able to have control over this process from beginning to end in order to be able to rely on the evidence requested.

The purpose of an audit is to enhance of confidence in the financial statements. An auditors opinion validates this purpose.

The presence of an external auditor allows creditors, investors or bankers to use financial statements that have been prepared with confidence. Although it does not guarantee the accuracy of a financial statement, it provides users with some reassurance that a company’s financial statements give a true and fair view of its financial position and its business operations. It also provides credibility, where in business, is a major asset. With credibility, the willingness of investors, bankers and others to relate and undertake business projects with a company increases. Credibility is also important to build positive reputations.

A company prepares financial statement to provide information about its financial position and performance. This information is in turn used by a wide range of stakeholders (such as investors, banks, customers, suppliers etc) in making economic decisions with respect to respective economic interest in the company. Typically, in terms of ownership by investment in shares of the company, shareholders though own the company but do not manage it. Therefore, the shareholder and other such stakeholders to get comfort in taking sound decision need independent assurance from the auditors that the financial statements reflect true and fair view of the company affairs in all material respects. Hence, in order to enhance the level of