The Corporate Collapse Of Harris Scarfe

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.

The media article indicated that Coles was facing more than $4 million fines, as ACCC argued its behaviour of lying about bread freshness could constitute breach of consumer law (SMH 2015). As the total amount of fines could be considerable, along with a negative impact on reputation, Coles could have entered into financial distress. The reason I chose this article was that most Australian people shop in Coles every week, thus the case is closely related to our life which is worth talking about. Besides, the article covered issue of sales and non-compliance of law which often attract auditors’ attention. The event mentioned in the article posed a risk to auditors in terms of inherent risk. Inherent risk means an auditor fails to identify or correctly understand the business risks that could result in material misstatement (Clubb 2015b). It is apparent that Coles’ behaviour is a non-compliance of law, which is included in business risk (Clubb 2015b). Therefore, auditors need to better understand the event highlighted in the article to increase the possibility of uncovering material misstatement. Auditors are held accountable for the problem because the problem may relate to potential misstatement in financial statements. If an auditor fails to uncover the misstatement, it is likely that he or she will issue a false opinion. However, auditor should express a true and fair view to increase the confidence of the external

[pic]s a senior in a professional services firm, you have been assigned to plan the financial statement audit of a private company named Toy Central Corporation (TCC). In addition, the partner on the engagement has asked you to identify business risks that could adversely affect TCC’s sustained profitability, so that they can be brought to the attention of the company’s board of directors. These tasks will require you to draw on your knowledge of supply chain management, marketing, internal controls, audit assertions, and financial accounting.

Title II of Sarbanes-Oxley covers Auditor independence, it contains nine sections all covering different aspects of auditors’ independence. Section 201, Services outside the Scope of Practice of Auditors, details what activities are not allowed to be performed by auditors for a client if they are to be performing an audit for that client. Detailed in section 201 as prohibited in order to maintain auditor independence are legal and expert services unrelated to the audit, any investment advisement, investment banking services, management or human resource functions, internal audit outsourcing services, actuarial services, appraisal or valuation services, financial

The factor that plays the greatest role in determining auditor independence is independence in mind. Auditors may or may not appear to be independent, but if the auditor is truly independent in mind, then the auditor can remain objective and unbiased. The profession should consider tightening the Code of Professional Conduct to address the issue of an audit team member knowing a close friend that holds any position at the audit client. If this scenario arises, the firm can still audit the client, but the audit member with the close relationship won’t be able to be on the audit team.

During the performance of this integrated audit, require numerous judgments about the internal control and overall financial reporting and how well it addresses risks of material misstatements within the financial statements (AICPA, 2014). After re-evaluating the previous errors found from the previous audit, the audit team found the corrective actions to be appropriate and justified in elimination of human error by implementing additional checks and balances within the manual process. No additional misstatements have been found and all internal controls off the financial reporting seem appropriate and just.

The auditing firm has been in engagement with the company throughout the period when the fraud was being committed. One of the common and clear indicators of possible fraud was the company’s cash flow statement. The company experienced positive growth in its profits from the year 1996 through to the year 1998. However, a close analysis of the cash flow statement shows that the company had experienced negative figures of cash flow from both operating and investing activities and positive cash flow from financing activities which would not sufficiently offset the negative cash flows from operating and investing. It is therefore evident

There are numerous threats to the independence of auditors which have been identified in the multiple studies and discussions both in Australia (such as the Ramsay report, CLERP 9 Paper) and internationally by IFAC, the European Commission

BDO failed in its responsibilities to act independently and in the best interests of investors. According to Rule 101 of the AICPA’s Code of Professional Conduct, auditor independence is impaired if during the time of the engagement, the auditor “had or was committed to acquire any direct or material indirect financial interest in the client.” During BDO’s audit engagements, BDO also took part in Stanford’s Task Force. The complaint filed against BDO alleged that, “A key initiative for the Stanford Task Force — fully known to BDO USA — was to amend Antigua’s Money Laundering (Prevention) Act to ensure that “fraud” and “false accounting” did not fall under the Act’s prescribed list of violations.” By participating in the Stanford-funded Task Force and assisting in weakening Antiguan-banking laws, BDO had an indirect financial interest in Stanford Financial Group, thus violating the independence guideline.

Rittenburg, Larry. Johnstone, Karla. Gramling, Audrey. (2012) Auditing: A Business Risk Approach 8e. Mason: South-Western, Cengage Learning.

7. OVERVIEW AND ANALYSIS: A senior associate at Richard, Wood and Hulme LLP (RWH) was amazed at the speed with which the audit team for an important client for the firm was rapidly falling apart. Two members had just been fired presumably because they did not pass their chartered accounting qualification examination; team morale had become non-existent; there were difficulties in completing the engagement due to lack of preparation from both the RWH and the client; there was a question about the commitment of particular individuals; and with the audit falling behind schedule, the senior associate perceived an absence of strong leadership from the partners of the firm. The senior associate did not understand why the team had been so unfocused from the start of the engagement as prior years’ engagements had been quite successful. He was not sure how to proceed. What would he tell the client? What should he do to keep this audit on track and keep the team together?

An “audit failure” is a situation in which a professional auditor fails to detect a material error in the financial statements of the company they are auditing. The audit failure in the situation of Rita Crundwell the failure was exacerbated by the fact that the auditors continually signed off on the misstated statements for years. Crundwell is responsible for many of the deficiencies mentioned, such as the missing funds and the incorrect invoices. However, she is not the sole person responsible for this fraud. The lack of internal control is to blame, and this cannot be placed on a single person. The government should have separated duties and used

The second ethical issue involved in this case is whether the audit team embodies integrity in their audit performance. APES 110 s110 says that the principle of integrity imposes an obligation on all Members to be straightforward and honest in all professional and business relationships. (ICAA Auditing and Assurance Handbook 2012)Integrity also implies fair dealing and trustfulness. (ICAA Auditing and Assurance Handbook 2012)In this case, John’s partner, Chandler may encounter self-interest threat, familiarity threat and intimidation threat. He might involve himself in a financial relationship with their client or get too close to their client or feel intimidated by their client. As a result, Chandler offered a pretty-looking report about Moulberg’s internal control. If the audit team adopts Chandler’s report, they will violate the principle of integrity.

The auditor also obtained an understanding of the business and its environment in order to assess the risk of material misstatement. ISA 310 requires a reasonable understanding of the client’s business and industry. The nature of the client’s business and industry affects the client business risk and the risk of material misstatements in the financial statements. The auditor used the knowledge of these risks to determine the appropriate amount of audit evidence gathered. The auditor through experience is aware of the exposure to problems resulting from the auditor’s failure to understand comprehensively the nature of transactions in the client’s business. The understanding helped the auditor to evaluate the design and implementation of specific controls that could stop or discover and rectify material

With the avalanche of accounting scandals that have rocked the public, people tend to have increasingly high expectation that auditors are accountable for detecting all frauds, while the standards require auditors to provide reasonable, but not absolute, assurance. The purpose of the report is to discuss the accountability of auditors in detecting fraud by analysing a $16.9 million fraud of Otago District Health Board (ODHB) perpetrated by Swann and Harford from 2000 to 2006. The report will explain the event, the fraud, the stakeholders, the role of auditors and the current situation.