Austin Smith
ACCT 4430
Metrejean
April 10th, 2015

Knapp Case 2.3

1. The primary audit objective that stems from confirming accounts receivables and performing sales cutoff tests is to detect and prevent fraud. In this case Coopers & Lybrand performed these audit tests, but did not perform them the way they should. They relied too much on past financial statements and word from upper management. 2. The way that the case describes Coopers & Lybrand audit performance, I think that they were negligent and fraudulent in their performance. As the receivables were being confirmed at year-end, Coopers & Lybrand took management’s word on a fictitious confirmation instead of following up and confirming it directly with the company. Also one of the accounts with the most sales closest to year-end, West Coast Liquidators, did not even have its receivables checked. If followed up on, fraudulent activity would have been found immediately. 3. The auditors of Coopers & Lybrand should have confirmed the receivables based on the magnitude of each one. These sales should also be on the cutoff sales reports because of how much money is being exchanged and its closeness to year-end. 4. An alternative measure that could be performed would be direct contact with the business the confirmation never came back from. With direct contact, one can get evidence from the company from someone that knows about the financials of the company. As shown in the case, relying on the opinion of upper management might not be the smartest move. 5. While I do not think it is the responsibility of the auditor to determine if upper management is engaging in insider trading, I do see how an auditor performing an in depth audit could determine if someone was performing the act. With insider trading, many shares or even blocks of shares will be sold for what it seems