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– 2. Identify and briefly describe any mistakes or errors in judgment that Coopers & Lybrand may have made in its efforts to confirm the Wow Wee receivable at the end of fiscal 1995. In your opinion, did these apparent mistakes or errors in judgment involve “negligence” on the part of the given auditors? Would you characterize the mistakes or errors as “reckless” or “fraudulent”? In each case, justify your answer.Need Assignment Help Online, Homework Solutions & Case Study Answers? Order Custom Research Essay Writing Service.
– Auditors failed to double-check the fax confirmation. The auditors relied only on the faxed transmission and nothing else. Fax confirmations involve risks because of the difficulty of ascertaining the sources of the responses. To restrict the risks associated with fax confirmations and treat the confirmations as valid audit evidence, the auditor should consider taking certain precautions, such as verifying the source and contents of a fax confirmation with a telephone call to the purported sender. In addition, the auditor should consider requesting the purported sender to mail the original confirmation directly to the auditor (AU330.29).Need Assignment Help Online, Homework Solutions & Case Study Answers? Order Custom Research Essay Writing Service.
– In my opinion, the auditors were negligent because the amount being confirmed was material and failed to take steps to verify the source and contents of the fax transmission. However, in my opinion, the auditors were not reckless. This is because being reckless or fraudulent would involve high degree of disregard for standard procedures. I do not believe that is the case since the auditors did get a confirmation, just not a genuine confirmation. In other words, they tried to do something, but not everything in the confirmation process.Need Assignment Help Online, Homework Solutions & Case Study Answers? Order Custom Research Essay Writing Service.
– 3. Should the Coopers & Lybrand auditors have confirmed the receivable from West Coast Liquidators at the end of fiscal 1995? Why or why not? Should the auditors have included one or more sales to West Coast Liquidators in their year-end sales cutoff tests for fiscal 1995?Need Assignment Help Online, Homework Solutions & Case Study Answers? Order Custom Research Essay Writing Service.
– Generally if the audit risk is acceptably low and if the West Coast Liquidators somehow is not selected in the random samples of confirmation of receivables, the auditor is not required to confirm the receivable from West Coast Liquidators. This is because we are only taking a “sample” of receivables and not the entire population. However, in this case, the auditor should have known about the several “red flags” that had taken place in the company when performing risk assessment during audit planning and during fieldwork.Need Assignment Help Online, Homework Solutions & Case Study Answers? Order Custom Research Essay Writing Service.
– The auditor is like a “police”; if something smells “fishy”, the auditor has a duty to investigate it. In other words, if the combined assessed level of inherent and control risk over the occurrence of revenue related to an unusual, year-end sale is high, the auditor should consider confirming the terms of that sale (AU330.08). At the very minimum, the auditors should have included several big sales to West Coast Liquidators in their year-end sales cutoff for fiscal 1995. In other words, in order to achieve an appropriately low level of audit risk related to the completeness and existence assertions for accounts receivable, an auditor may perform sales cutoff tests in addition to confirming accounts receivable (AU330.09).Need Assignment Help Online, Homework Solutions & Case Study Answers? Order Custom Research Essay Writing Service.
– 4. What alternative audit procedures can be applied to a large receivable of audit client when a confirmation of that receivable cannot be obtained, for whatever reason? Compare and contrast the evidence provided by these procedures with the evidence yielded by a confirmation.Need Assignment Help Online, Homework Solutions & Case Study Answers? Order Custom Research Essay Writing Service.
– Alternative procedures of a large receivable when a confirmation of that receivable cannot be obtained include examination of subsequent cash receipts (including matching such receipts with the actual items being paid), shipping documents, or other client documentation to provide evidence for the existence assertion (AU330.32). Although the source of the cash receipts, shipping documents, or other client documentation came from third party, the downside is that these documents may be altered. This is because these documents are usually handed to the auditor by the client. This is especially true in the digital age when documents can be scanned and edited. Of course, there are also downsides with confirmation requests. The client may give false addresses to the auditor by giving invoices with altered addresses or purposely typed wrong addresses when the auditors asked for the address. However, if the auditor receives mail confirmations with verified addresses (e.g.: checked the addresses via internet), chances are very good that the confirmations are genuine.Need Assignment Help Online, Homework Solutions & Case Study Answers? Order Custom Research Essay Writing Service.
– 5. The SEC charged certain executives of Happiness Express with “insider trading”. Do auditors have a responsibility to consider or investigate the possibility that client executives have engaged in insider trading activities? Defend your answer.Need Assignment Help Online, Homework Solutions & Case Study Answers? Order Custom Research Essay Writing Service.
– The auditor has very limited responsibility to consider or investigate the possibility that client executives were engaged in insider trading. Assuming that the auditor is not aware of any fraud, there is no auditing guidelines for testing for violations to insider trading. However, the auditor has a responsibility of a need to disclose the transaction as a contingent liability (AU317.06).Need Assignment Help Online, Homework Solutions & Case Study Answers? Order Custom Research Essay Writing Service.
– This is because when a client executive brought or sold stocks, the client executives may have violated Section 10(b)-5 of the Security Exchange Act of 1934, which prohibits the buying or selling of securities based upon access to confidential or proprietary information not available to the public. The auditor should determine if possible violations of such laws and regulations can have consequences material to the financial statements. But, the auditor may not become aware of the existence of the illegal act unless he is informed by the client, or there is evidence of a governmental agency investigation or enforcement proceeding in the records, documents, or other information normally inspected in an audit of financial statements (AU317.06).Need Assignment Help Online, Homework Solutions & Case Study Answers? Order Custom Research Essay Writing Service.
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