The North Face, Inc Case Essays

665 WordsNov 5, 20123 Pages
Case 5.3 The North Face, Inc 1 Auditors should not insist that their clients accept all proposed audit adjustments even those that have an “immaterial” effect on the given set of financial statements. Because “immaterial” effect on the financial statements will not affect the users’ decisions. Therefore, auditors have to confirm if the effects on the financial statements are really “immaterial”. If there are really “immaterial”, sometimes the auditor would be forced by the clients to ignore it. So the auditor should give the client suggestions on why they recommend for the client to make adjustments. If the client disagrees with the adjustments, they maybe have a logical reason for why they don't want to make the adjustments. The auditor…show more content…
And a large portion of the 9.3 millions dollars that was recorded for the consignment sales was improper because it violated SFAS No. 48 (Revenue Recognition When Right of Return Exist). It was not a real exchange because the two customers did not pay for their merchandises and the transactions were not finalized until the customers resells the merchandise. 4 Audit documentation serves mainly to: (AU 339.03) a Provide the principal support for the auditor’s report, including the representation regarding observance of the standards of fieldwork, which is implicit in the reference in the report to generally accepted auditing standards. b Aid the auditor in the conduct and supervision of the audit. All of these two objectives above were undermined by Deloitte’s decision to alter North Face’s 1997 workpapers. First, when Borden reviewing the 1997 audit workpapers, he discovered the audit adjustment that Pete had proposed during the prior year audit to reverse the 1.64 million barter transaction. He destroyed audit evidence, prepared a new summary memorandum and adjustments schedule reflecting the revised conclusion about profit recognition, and replaced the original 1997 working papers with these newly created working papers. Second, Borden relied on this assertion during the 1998 audit. Thus, the auditors reached an

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