The Audit Statement Was Regular, but for What Expense?
THE AUDIT STATEMENT WAS TIMELY, BUT AT WHAT EXPENSE?
Following studying this kind of chapter, you ought to be able to
3-1 Describe the parts of the normal unqualiﬁed taxation report. Stipulate the conditions instructed to issue the standard unqualiﬁed review report. Understand combined reporting on ﬁnancial statements and internal control of ﬁnancial credit reporting under Section 404 in the Sarbanes–Oxley Take action. Describe the ﬁve circumstances when an unqualiﬁed report with an informative paragraph or perhaps modiﬁed text is appropriate. Identify the types of audit reports that may be issued when an unqualiﬁed view is certainly not justiﬁed. Explain how materiality affects review reporting decisions. Draft properly modiﬁed audit reports under a variety of situations. Determine the right audit record for a provided audit scenario. Discuss the impact of web commerce on review reporting. 3-2 3-3
Halvorson & Co., CPAs was hired as the auditor for Machinetron, Inc., a firm that produced high-precision, computer-operated lathes. The particular owner, Al Trent, thought that Machinetron was willing to become a community company, and he appointed Halvorson to conduct the upcoming review and aid in the preparation of the enrollment statement for a securities supplying. Because Machinetron's machines had been large and complex, these were expensive. Every sale was negotiated individually by Trent, and the sales often happened over a few months. As a result, inappropriate recording of one or two equipment could stand for a material misstatement from the ﬁnancial assertions. The diamond partner in charge of the Machinetron audit was Bob Lehman, who had signiﬁcant experience auditing manufacturing companies. He recognized the risk for improper recording of sales, and he insisted that his staff conﬁrm all receivables at year-end directly with customers. Lehman conducted his review of the Machinetron audit ﬁles the same day that Trent wanted to make the industry�s registration declaration for the first public stock offering successful. Lehman found that a receivable for a key sale for year-end was supported by a fax, rather than the usual drafted conﬁrmation answer. Apparently, associations with this kind of customer had been " sensitive, ” and Trent had discouraged the audit staff from conntacting the customer. All in all, there was a meeting in Machinetron's ofﬁce. It absolutely was attended simply by Lehman, Trent, the underwriter of the inventory offering, plus the company's attorney. Lehman suggested that a better form of conﬁrmation would be required to support the receivable. After hearing this, Trent blew his collection. Machinetron's attorney stepped in and calmed Trent down. He agreed to write a notice to Halvorson & Company. stating that in his view, a fernkopie had legal substance like a valid conﬁrmation reply. Lehman, feeling huge pressure, approved this proposal and authorized off with an unqualiﬁed review opinion. Half a year after the share offering, Machinetron issued an argument indicating that it is revenues pertaining to the prior year had been over-stated as a result of improperly recorded product sales, including the sale supported by the fax conﬁrmation. The subsequent SECURITIES AND EXCHANGE COMMISSION'S investigation uncovered that the send had been sent by Trent, not the consumer. Halvorson & Co. were recalled their unqualiﬁed audit survey, but this was too late to prevent the damage done to shareholders. Halvorson & Co. was forced to spend substantial damages, and Bob Lehman was forbidden to train before the SEC. He eventually left general public accounting. ISBN: 0-536-35831-1
Auditing and Confidence Services: A built-in Approach, Eleventh Edition simply by Alvin A. Arens, Randal J. Elder, and Indicate S. Beasley. Published by Prentice Hall. Copyright © 2006 by Pearson Education, Inc.
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eports are essential to review and peace of mind engagements because they talk the auditor's ﬁndings. Users of ﬁnancial statements depend on the auditor's report to provide assurance on the...
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