...In November 2001, Arthur Andersen & Co. employees in that firm’s Houston office shredded certain Enron audit workpapers during the midst of a federal investigation of the large energy company. The decision to destroy those workpapers ultimately proved to be the undoing of the prominent accounting firm. A few years later, a felony conviction for obstruction of justice would effectively put Andersen out of business. Ironically, at the same time that the Andersen personnel were shredding Enron workpapers, three senior members of the NextCard, Inc., audit engagement team were altering the fiscal 2000 audit workpapers of that San Francisco-based company. NextCard was founded during the late 1990s by Jeremy Lent, the former chief financial officer of the large financial services company, Providian Financial Corporation. Lent’s business model was simple: use a massive Internet-based marketing campaign to quickly grab a large market share of the intensely competitive credit card industry. By 2000, NextCard, which by then was a public company, had signed up one million credit card customers. Unfortunately, NextCard’s customers tended to be high credit risks, which resulted in the company absorbing much higher than normal bad debt losses. When the company’s management team attempted to conceal those large credit losses, the SEC and other federal regulatory authorities uncovered the scam. By 2003, the once high-flying Internet company was bankrupt and its former officers were...
Words: 433 - Pages: 2
...| | | | | | | | Section | | Page | To Do – Yes/No | WP Reference | Blackboard Template Available – Yes/No | Description of To Do | | Other Notes | Planning | | 6 | Yes | GA-1 | No | 2. Draft Engagement Letter using the sample letter from the previous auditors in Blackboard. You will need to type this in word from scratch. You will need to make appropriate changes as needed and as discussed in class. | | | Planning | | 6 | Yes | GA-2 | No | 3.Draft short staffing requirements memo | | | Planning | | 37 | Yes | Varies | Yes | Note you do not need to search for audit programs – Refer to Blackboard for Audit Program Templates that are included with each audit area. You will need to reference and sign off each audit step as required (note that all audit steps provided in the audit program may not be needed.) | | | Planning | | 38 | Yes | GA-3 | Yes | Draft workpaper for the notes and information obtained from the 2011/2012 minutes (as discussed in class) | | | Planning | | 42 | Yes | A-1, A-2 etc | Yes | Trial Balance numbers for 2011 and 2010 9pages 43-44 are already input into the excel worksheets to use as a trial balance template | | | Planning | | 45 | Yes | A-1,A-2 etc | Yes | Use excel trial balance worksheets to calculate analytics as we demonstrated in class. You must complete items 1a and b. Financial Statement and changes and financial ratios Also, we completed item 2 - using items {a}–{j} but not in memo form – so you will...
Words: 1377 - Pages: 6
...CASE 1.6 NEXTCARD, INC. Synopsis In November 2001, Arthur Andersen & Co. employees in that firm’s Houston office shredded certain Enron audit workpapers during the midst of a federal investigation of the large energy company. The decision to destroy those workpapers ultimately proved to be the undoing of the prominent accounting firm. A few years later, a felony conviction for obstruction of justice would effectively put Andersen out of business. Ironically, at the same time that the Andersen personnel were shredding Enron workpapers, three senior members of the NextCard, Inc., audit engagement team were altering the fiscal 2000 audit workpapers of that San Francisco-based company. NextCard was founded during the late 1990s by Jeremy Lent, the former chief financial officer of the large financial services company, Providian Financial Corporation. Lent’s business model was simple: use a massive Internet-based marketing campaign to quickly grab a large market share of the intensely competitive credit card industry. By 2000, NextCard, which by then was a public company, had signed up one million credit card customers. Unfortunately, NextCard’s customers tended to be high credit risks, which resulted in the company absorbing much higher than normal bad debt losses. When the company’s management team attempted to conceal those large credit losses, the SEC and other federal regulatory authorities uncovered the scam. By 2003, the once high-flying Internet company...
Words: 3510 - Pages: 15
...independent auditors commonly face challenging technical and ethical dilemmas while carrying out their professional responsibilities. This case profiles an accounting and financial reporting fraud orchestrated by the chief financial officer (CFO) of a major public company and his subordinates. The CFO, who was a CPA, took extreme measures to conceal the fraud from his company’s audit committee and independent auditors. Despite those measures, the independent auditors identified suspicious entries in the company’s accounting records that were a result of the CFO’s fraudulent scheme but did not properly investigate those items. Shortly before the fraud was publicly revealed, a partner of the company’s audit firm instructed his subordinates to alter prior year audit workpapers for the client to conceal improper decisions made by himself and his firm. AUDITOR’S DILEMMA: The auditor’s dilemma in the case presented is to either alter the prior-year workpapers to conceal questionable decisions made by an audit partner, decisions that involved several large barter transactions that inflated the audit client’s reported...
Words: 9182 - Pages: 37
...Deloitte's audit team had been auditing Adelphia and Rigas for numerous years. The 2000 audit remained largely unchanged from prior years. The team consisted of about twenty staff accountants and tax professionals, divided into subgroups that were supervised by ten Deloitte managers and headed by senior manager William Caswell, who reported directly to Dearlove. Several of the Deloitte managers had significant prior experience auditing and reviewing Adelphia's annual and quarterly reports: Caswell had spent six years working on Adelphia engagements; Ivan Hofmann and Robert Fitzgerald, both audit managers, had each spent five years. In addition, Michael Lindsey served as the concurring partner as he had on Adelphia audits since 1996, and Stephen Biegel was assigned as risk review partner after serving in that capacity for the 1999 Adelphia audit. Dearlove had once met Caswell at a firm meeting but did not otherwise know any members of the Adelphia audit team when he assumed his role as engagement partner. Deloitte devoted an estimated 21,000 hours to the audit of Adelphia's 2000 financial statements and related accounting advisory activities; Dearlove himself spent over 700 hours. Dearlove spent a total of ten to fifteen days on-site in Coudersport with the audit team. Dearlove participated in discussions with the team, reviewed workpapers and underlying Adelphia documents when the team brought them to his attention, and "worked through the issues" with his staff in what Dearlove...
Words: 583 - Pages: 3
...Commission and the Financial Accounting Standards Board had a hand in lack of the public’s confidence in the accounting profession. Due to the lack of regulation for SPEs at the time of Enron scandal, companies found it easy to exploit the “3 percent” loophole, which allowed them to avoid having to consolidate the SPEs balance sheets with their everyday operations. This, in turn, allowed companies to move liabilities off balance sheet without having to make too many disclosures. The lack of directive by the SEC and FASB made it acceptable for companies to report inflated gains on various misleading transactions. * Next, the audit firms that deviated from their fiduciary duty to their clients and the public contributed greatly to the crisis in the accounting profession. There is an inherent conflict of interest when a firm begins providing audit services and a wide range of consulting services; the firm loses its objectivity when it helps a client to pursue aggressive, irresponsible accounting tactics. In the Enron case, Andersen was complicit in the aggressive accounting schemes and nefarious financial reporting for its SPE transactions. Additionally, Andersen lost its independence and objectivity when it became a part of the cover-up, helping to structure SPE transactions and destroying documents related to Enron’s finances. * Lastly, the elaborate hoax that the executive management team of Enron put in motion to facilitate exponential growth put everything in...
Words: 1134 - Pages: 5
...What question is the study trying to answer? The study tries to generate alternate procedures that could have been used to avert audit failure. Why should we care about the study? Evaluating actual audit procedures from an audit failure has been nearly impossible for audit researchers because workpapers are usually owned by the defending firm and sealed in litigation cases or destroyed. It provides an important basis on which future research could be built. Additionally, the LSL case involves management fraud, which is present in nearly 50% of lawsuits against auditors. It is also important to note that it was the single largest savings and loan bailout in history. What do the authors predict they will find and how do they motivate their predictions? They did not make specific predictions, but they did indicate that by studying the workpapers and available information on this case, they would be able to derive some specific points in which auditors may have been weak or lacking. How do the authors test their predictions? The authors gathered, analyzed, and tested information that should have been used during the audit to determine whether the auditors’ decisions could have been altered by them. They applied and integrated business, industry, and economic knowledge into a review of the reasonable and substance of these transactions to see if the results would have led the auditors to a different opinion about LSL. What are the primary results of the study? ...
Words: 398 - Pages: 2
...convergence of U.S. auditing standards with International Standards on Auditing (ISA). This convergence project is attempting to make auditing standards coordinated or comparable throughout the world. Additionally, the Public Company Accounting Oversight Board (PCAOB) adopted a suite of eight auditing standards related to the auditor’s assessment of, and response to, risk in an audit. The eight new risk assessment standards address the audit procedures from the initial planning stages through the final evaluation of audit procedures and results. As a result, the PCAOB auditing standards and ISAs have more similarities than ever before. 2. Describe the five key differences between ISA’s and US Auditing Standards. Even so, there are still some differences between ISA’s and U.S. Auditing Standards. The five key differences between ISA’s and US Auditing Standards are: documentation of audit procedures; going-concern considerations; assessing and reporting on internal control over financial reporting; risk-assessment and responses to assessed risks; and the use of another auditor for part of an audit. The first key difference is that the documentation of U.S. auditing standards and ISAs differ: AICPA auditing standards and PCAOB auditing standards are more prescriptive than ISAs, which are perceived as relying more on the professional judgment of the...
Words: 864 - Pages: 4
...that they are buying the stock from and the audit firms that audit those companies. When the consumers lose that trust then it is hard to trust other companies. In this case we will learn what went wrong and what steps can be made to prevent this from happening again. Should auditors evaluate the soundness of a client's business model? Defend your answer. I do not think that auditors should evaluate the soundness of a client’s business model. There are no laws or regulations stating that a business has to evaluate the soundness of a client’s business model. There are regulations and standards in the AU Section 311 that the audit firm has to gain knowledge and understanding of the client’s business operations (pcaobus, 2012). With this being a new business this step was very important. When you have a new business environment entering the business industry it is good to have knowledge and understanding of the client’s business. With knowledge and understanding of the client’s business an audit firm can successfully audit a new industry. Identify and briefly describe the specific fraud risk factors present during the 2000 NextCard audit. How should these factors have affected the planning and execution of that engagement? There are specific fraud risk factors that were apparently present during the 2000 NextCard audit. Those fraud risk factors are listed below. (A) NextCard’s management team did not have a good internal audit team set up. NextCard also was not honest about...
Words: 1611 - Pages: 7
...students with the opportunity to begin developing an appropriate mindset for making good judgments. Module Learning Objectives Critical analysis of case issues and application of KPMG Professional Judgment Framework allow students to increase their: 1. Problem solving and decision making skills in an ambiguous learning environment; 2. Strategic / critical thinking as they consider the relevant issues of the case and make subjective decisions; 3. Ability to identify relevant risks associated with improper judgments; and 4. Understanding of ASC 740 and accounting for income taxes and how judgment impacts financial reporting. Module Components • Class Structure: 3 hour unit of study • PowerPoint Lecture • Case Assignment • Workpaper • Five Videos • Summary: Elevating Professional Judgment in Auditing and Accounting: The KPMG Professional Judgment Framework (available at: http://www.kpmguniversityconnection.com/ProfessionalJudgment/CurriculumSupport/Monographs/Professional-Judgment-Summary.aspx Acknowledgements: The author gratefully acknowledges the advice offered by Daryl Taylor, KPMG Houston, and Kathryn Radfar, in developing this case and suggested solutions. KPMG University Connection www.KPMGUniversityConnection.com © 2013 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member , firms affiliated with KPMG...
Words: 15534 - Pages: 63
...including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature timing, and extent of further audit procedures. So it is the standards that asks auditors to evaluate the soundness of a client’s business model to avoid material misstatements. 2) By means of evaluating the client’s business model, auditors could understand its ability to continue as a going concern. As a result, auditors can more accurately identify the acceptable audit risks and release themselves from being a defendant. 3) Also if the auditors have evaluated the soundness of a client’s business model, they can find potential fraud or error before the field work begins, which could make them easier to focus on some specific accounts to find out whether there is fraud in the company. 2. Identify and briefly describe the specific fraud risk factors present during the 2000 NextCard audit. How should these factors have affected the planning and execution of that engagement? According to the picture above, which shows the fraud triangle, we can easily know that there are three elementary fraud factors: pressure, opportunity and rationalization. In this case, the specific fraud risk factors present during the 2000 NextCard audit are described below: 1) Pressure/Incentives: NextCard Inc. had been taken public in 1999. On the first day NextCard’s stock was traded, the...
Words: 835 - Pages: 4
...accounting schemes to enhance the company’s reported earnings. Campbell stockholders filed a series of lawsuits in late 1990s. The alleged scams included trade loading, improper accounting for loading discounts, shipping to the yard, and guaranteed sales. The plaintiffs in the class-action lawsuit filed against Campbell Soup Company and its top executives eventually added Pricewaterhouse (PwC), Campbell’s independent auditor, as a defendant in the case. To allow a lawsuit filed under the 1934 Security Act to proceed against a defendant, a federal judge must find that the plaintiffs have alleged or “pleaded” facts “to support a strong inference of scienter” on the part of that defendant. After completing the review of PwC’s audit workpapers, judge Irenas ruled that individually and collectively the plaintiff’s allegations did not provide a sufficient basis to justify including the accounting firm as a defendant. In this case, there are four issues from which we can learn how a company may use improper business practices to manipulate its reported operating results. These practices are trade loading, improper accounting for loading discounts,...
Words: 440 - Pages: 2
...profession today. Due to these modifications, firm growth and productivity has increased dramatically, especially in the past year. The progress of hardware, applications, infrastructures, and combined accounting workflows show the accounting trends for the future. By firms noting the way the technology has thus far impacted the profession, the firms can thereby assess the potential increased productivity, profitability and nature of services that can be offered to their clients. The capability to have access to telecommute by means of a server, in the comfort of one’s home or the ability to access the internet, either in the office or at home, unrestricted Internet ability with all the tools necessary. So when auditors avail themselves of audit binders for local disk drives, the client and firm have the security and backup necessary to work from afar. The solution to conduct all possible work through the Internet, with backup on the firm's protected servers, where the data runs more effectively and can be accessed by anyone who is authorized to do so, has created a transition that is truly advantageous. Cloud Solutions, or doing work in the cloud, means that your accounting software is available anywhere where there is an internet connection. Your online system can also be linked to bank feeds for up-to-date and accurate syncing with your accounts, which makes for super easy reconciling. The data itself is backed-up off-site, so safer than storing on your own computer system....
Words: 702 - Pages: 3
... | | | | | | | | | |On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002. The Act—which applies in general to publicly held companies | |and their audit firms—dramatically affects the accounting profession and impacts not just the largest...
Words: 4973 - Pages: 20
...Licensed to: iChapters User Licensed to: iChapters User CONTEMPORARY AUDITING REAL ISSUES & CASES MICHAEL C. KNAPP SEVENTH EDITION MAKE IT YOURS! SELECT JUST THE CASES YOU NEED Through Cengage Learning’s Make It Yours, you can — simply, quickly, and affordably — create a quality auditing text that is tailored to your course. • Pick your coverage and only pay for the cases you use. • Add cases from a prior edition of Knapp’s Contemporary Auditing. • Add your course materials and assignments. • Pick your own unique cover design. We recognize that not every program covers the same cases and topics in your auditing course. Chris Knapp wrote his case book for people to use either as a core e book or as a supplement to an existing book. If you would like to use a custom auditing case book or supplement the South-Western accounting book you are currently using, simply check the cases you want to include, indicate if there are other course materials you would like to add, and click submit. A Cengage Learning representative will contact you to review and confirm your order. G E T S T A R T E D Visit www.custom.cengage.com/makeityours/knapp7e to make your selections and provide details on anything else you would like to include. Prefer to use pen and paper? No problem. Fill out questions 1-4 and fax this form to 1.800.270.3310. A Custom Solutions editor will contact you within 2-3 business days to discuss the options you have selected...
Words: 20989 - Pages: 84
