1. What assertions were incorrect?
The incorrect assertion related to management includes Barry Minkow creating false financial statements for his restoration business that did not truly exist. Furthermore, Minkow created false accounts related to his restoration business in order to make his company look profitable.
2. What specific transaction-related audit objectives or balance-related audit objectives apply to the incorrect assertions?
The transaction-related audit objectives that apply to the incorrect assertions include occurrence, accuracy, and classification. Minkow recorded transactions that never took place through the use of fake invoices. This violates the occurrence objective. In addition, Minkow would forge fake invoices indicating that the accounts receivables had been paid. This violated the accuracy objective. Lastly, the classification of his accounts was faulty because he created accounts that did not really exist.
The balance-related audit objectives that apply to the incorrect assertions include existence, completeness, accuracy, and classification. Many of the amounts included on the balance sheet did not exist. For example, any inventory number he may have used was inaccurate because the restoration company did not truly exist. With that in mind, this violates the accuracy objective because the amounts could never have been correct if the company did not exist. Another example of a violation on the balance sheet was the accounts receivable. There were no real accounts receivable but Minkow hid this through fake invoices.
3. What steps should have been taken by the auditors that might have detected fraud?
The auditors should have verified that the invoices were real and that the transactions really occurred. They should have felt obligated to call the clients to verify the invoices and not be intimidated by Minkow. The