Team Collapse at RWH

Finally, the notes and disclosures lacked in presentation and disclosure. Since the financial statements were missing accounts

Brent has the option of “eating time” as Han has suggested. This means working off the clock but he will be able to finish under budget and look good at the firm. However, this will have an adverse effect for future budgets making it seem like the audit can be completed in less time than is even possible. Also, it fails to show the accurate cost of completing the audit. Brent also has the option of lowering the number of payables tested. If he decided to do this, Brent would be able to complete his work in less time, possible under budget and allow him to spend the rest of the time with his wife. However,

As indicated by PCAOB, the written representation cannot be a substitute for substantive procedures. Thus, auditors did not perform adequate procedures to test the management’s estimates. What’s more, inquires were heavily relied on the management’s integrity. Auditors ignored the professional skepticism. Finally, the 30 years and 15 years useful lives, which were adopted previously by Little Drummer, were not appropriately audited. Since the engagement team did not contact the predecessor auditors, the team did not get any audit documents from predecessor auditors regarding the assumptions of 30 years and 15 years. There was no evidence to show the reasonableness of these two assumptions.

From what Alex said, it seemed that Dianne Morris, the manager on this audit, was the one who was applying the pressure on Alex to keep the audit under budget. But eating time just didn’t feel right. Mike hesitated and then said, “I don’t know Alex. Don’t you think we’d better just mark down the actual hours?”

3. In this particular case, due to lack of proper revenue recognition in previous periods in this audit, many challenges in using financial information surfaced.

During the planning phase of the audit, you met with Pinnacle’s management team and performed other planning activities. You encounter the following situations that you believe may be relevant to the audit:

In previous meetings between Chen and Shorter, in January and June, Shorter turned down Chen’s request to move to the tax division, citing inadequate audit experience. However, Chen met with Shorter two more times after the June meeting, and he persisted that he be moved to the tax division. Shorter eventually promised to move Chen to the tax division with the condition that Chen had to do auditing for one year. Although in the previous meetings Shorter wanted Chen to work in auditing he gave allowances to his stand and let Chen move to tax after two completing two months of audit work. Until this point though Shorter was resisting his requests Chen finally got what he

* Bo and Mo explicitly say that they do not want Kevin to cut down on the work he does.

Academic research suggests that underreported time on audit engagements is a common practice. What are the key objectives of tracking hours worked by individual accounts or assignments on audit engagements? What implications does the underreporting of time have for individual auditors, their colleagues, and the overall quality of independence audits?

During the planning phase of the audit, you met with Pinnacle’s management team and performed other planning activities. You encounter the following situations that you believe may be relevant to the audit:

A second member of the audit team in charge of inventory was interviewed and he verified that they could not complete thorough stock take and other processes because they simply ran out of time.

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)

On the Maxwell & Co. side of the Craftset assignment, there was more than one accountant assigned to the client, and there was a Senior accountant who provided supervision. Therefore, there was some segregation of duties and a senior member of the firm to verify that all work is being done correctly. With no room to wiggle, she did just enough to be able to keep focus on Rusher.

This analysis outlines some of the reasons why the Spector audit is unlikely to be completed by the due deadline. As in the prior year, the RWH team was given two-and-a-half weeks to complete the Spector audit in 2008. However, with only five days until the deadline, less than 50% of the audit has been completed, and the team is unlikely to complete the audit in the remaining time if they maintain their current slow pace, as they have done over the past week.

It is because based on the Critical Path Method (CPM), the network diagram of the work of different audit areas comes as Figure 1, and we can find that the critical path which is the series of activities using the longest time to complete is Activity 1-2-5-7-10-13-15. It means that if there is any delay on Activity 1, 2, 5, 7, 10, 13, 15, the whole project would be delayed also. However, David is only responsible on the auditing of liquid assets which is Activity 4 which is not in the critical path. The vacation or delay made by David would not affect the progress of the whole project.