You are young CIA just starting your own practice in Lollywood, Lahore, after 5 years’ experience with a “big six” firm. You have several connections in the entertainment industry and hope to develop a practice rendering income tax, auditing and accounting services to celebrities and other wealthy clients. One of your first engagements is arranged by Mr. Naveed, a long establish business manager for a number of celebrities and a personal friend of yours. You are engaged to audit the personal statement of financial conditions (balance sheet) of a Mr. Ijaz. However, the star also has a reputation as an extreme recluse who is never seen in public except at performances. Mr. Aneeq handles all of Mr. Naveed‘s business affairs, and all of your communication with Mr. Naveed are through Mr. Aneeq. You have never met Mr. Naveed personally and have no means of containing the star directly. All of Mr. Naveed business records are maintained at Mr. Aneeq office. Mr. Aneeq also issues cheques for many of Mr. Naveed personal expenses using a cheque signing machine and a facsimile plate of Mr. Naveed signatures. During the audit, you notice that during the year numerous cheques totaling approximately Rs.240, 000/- have been issued payable to cash. In addition, the proceeds of Rs.125, 000/- sale of marketable securities were never deposited in any of Mr. Naveed bank accounts. In the accounting records, all of these amounts have been charged to the account and title “Personal Living expenses”. There is no further documentation of these disbursements. When you bring these items to Mr. Aneeq attention he explains that celebrates such as Mr. Naveed often spend a lot of cash supporting various “hangers-on,” whom they don’t want identified by name. He also states, “Off the record, some of these people also have some very expenses habits”. He point out however, that you are auditing only the statements of all assets and liabilities. Mr. Naveed revenue or expenses. Furthermore, the amount of these transitions is not material in relation to Mr. Naveed net worth. Required: Discuss whether or not the undocumented disbursements and the missing securities’ proceed should be of concern to you in a balance sheet only audit. Identify the various courses of action that you might at least consider under these circumstances. Explain briefly the arguments supporting each course of action. Explain what you would do and justify your decision. Assume that you are long established CIA, independently wealthy, and that the Naveed account represents less than 5% of the annual revenue of your practice. Would this change in circumstance affect your conclusion in part C? Discuss.
You are young CIA just starting your own practice in Lollywood, Lahore, after 5 years’ experience with a “big six” firm. You have several connections in the entertainment industry and hope to develop a practice rendering income tax, auditing and accounting services to celebrities and other wealthy clients.
One of your first engagements is arranged by Mr. Naveed, a long establish business manager for a number of celebrities and a personal friend of yours. You are engaged to audit the personal statement of financial conditions (balance sheet) of a Mr. Ijaz. However, the star also has a reputation as an extreme recluse who is never seen in public except at performances.
Mr. Aneeq handles all of Mr. Naveed‘s business affairs, and all of your communication with Mr. Naveed are through Mr. Aneeq. You have never met Mr. Naveed personally and have no means of containing the star directly. All of Mr. Naveed business records are maintained at Mr. Aneeq office. Mr. Aneeq also issues cheques for many of Mr. Naveed personal expenses using a cheque signing machine and a facsimile plate of Mr. Naveed signatures.
During the audit, you notice that during the year numerous cheques totaling approximately Rs.240, 000/- have been issued payable to cash. In addition, the proceeds of Rs.125, 000/- sale of marketable securities were never deposited in any of Mr. Naveed bank accounts. In the accounting records, all of these amounts have been charged to the account and title “Personal Living expenses”. There is no further documentation of these disbursements.
When you bring these items to Mr. Aneeq attention he explains that celebrates such as Mr. Naveed often spend a lot of cash supporting various “hangers-on,” whom they don’t want identified by name. He also states, “Off the record, some of these people also have some very expenses habits”. He point out however, that you are auditing only the statements of all assets and liabilities. Mr. Naveed revenue or expenses. Furthermore, the amount of these transitions is not material in relation to Mr. Naveed net worth.
Required:
- Discuss whether or not the undocumented disbursements and the missing securities’ proceed should be of concern to you in a balance sheet only audit.
- Identify the various courses of action that you might at least consider under these circumstances. Explain briefly the arguments supporting each course of action.
- Explain what you would do and justify your decision.
- Assume that you are long established CIA, independently wealthy, and that the Naveed account represents less than 5% of the annual revenue of your practice. Would this change in circumstance affect your conclusion in part C? Discuss.
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