BUS 4068 Unit 2 Assignment 2 The Auditing Environment
- Firstly, Betty should contact someone within the company who handles finances to investigate why the omitted records were not rectified. Consulting with the corporate attorney can guide how to proceed with these findings. It’s also important for Betty to document her findings by sharing them with a trusted individual within her company.
- It might be wise for Betty to consider stepping away from the company and reassessing her future with them. She is fortunate to have discovered this issue, as failure to uncover it could have implicated her in potential fraud. If she decides to continue with the audit, she may need to extend the investigation to previous years, potentially revealing further irregularities. If the CEO is involved in fraudulent activities now, it is likely to continue in the future.
Bus 4068 Unit 2 Assignment 2 The Auditing Environment
- The next course of action depends on how the company addresses the issue. Betty has two options: conducting a professional audit or issuing an adverse audit opinion. The decision will depend on how the company handles the matter.
- In this situation, John should first communicate with the higher authorities within the firm, including the audit committee, to determine if they are aware of any illicit activities, such as drug smuggling within the company.
If evidence suggests the company’s involvement in illegal activities, John should gather evidence from the audit process and consider withdrawing from the engagement. Additionally, he should report the unlawful act to the Securities and Exchange Commission.
- John should confront Margaret, gathering evidence or statements that align with the evidence obtained from the audit committee regarding her involvement in fraudulent acts.
- John’s responsibility prevents him from individually reporting the crime to the police. If John discovers evidence of the crime, he should report it to the appropriate person or authority responsible for handling such legal matters.
- If John decides to leave the company, he should issue a disclaimer report stating that he could not gather sufficient evidence regarding the company’s illegal activities and that no opinion is provided based on the financial accounts. Alternatively, he should issue an unqualified report if he has substantial evidence but the findings do not reveal unlawful acts.
Bus 4068 Unit 2 Assignment 2 The Auditing Environment
- Sam’s stance aligns with professional standards, emphasizing the importance of auditors adhering to ethical guidelines and principles. By upholding these standards, Sam demonstrates his commitment to maintaining the integrity of the auditing profession.
- Sam distinguishes himself from the senior partner by exhibiting a stronger resistance to economic interests that may compromise objectivity. As an auditor, it is essential to remain unbiased and independent, free from any undue influence that could impact the integrity of the audit process.
In this case, Sam believes this adjustment should be implemented if the audit results reveal a clear need for a write-down of $350,000 to ensure accurate stock valuation on the balance sheet. He recognizes that compromising with the client to ignore a material overstatement, even if it involves a proposed reduction of $250,000, would violate professional standards. As auditors, they must not subordinate their judgment to others and have a duty to report any known material misstatements. - When auditors consider the impact of their opinions on clients, it is crucial to review the professional judgment exercised in arriving at the chosen opinion type, such as an adverse opinion.
For instance, if the auditors determine that a qualified statement should be issued due to a material overstatement of Accounts Receivable, they should thoroughly scrutinize the judgment points that led them to this conclusion. Regardless of the economic consequences for the audited entity, if they have confidence in the prudence and correctness of their judgment, auditors should provide a qualified opinion.
Bus 4068 Unit 2 Assignment 2 The Auditing Environment
The role of auditors is to safeguard the interests of users of financial statements, ensuring they are informed and protected. Failing to disclose known material misstatements leaves these stakeholders vulnerable to potential harm. In the case of Zeppo Electronics, the primary individuals who need protection are the creditors.
Delaying the disclosure of the inventory overstatement could expose them to greater harm in the future when they extend further loans to the company. Although issuing a negative opinion can adversely affect a company, it is not the auditor’s responsibility to preserve the company’s reputation. Instead, auditors are entrusted with reporting on the fairness and accuracy of the information presented by management, thereby maintaining transparency and accountability in the financial reporting process.
