...Anton Chaney-Harris 2/12/2015 ACCT 4420 Knapp Cases – NextCard 1. Should auditors evaluate the soundness of a client’s business model? Defend your answer. The auditors don’t have the full responsibility of looking over the client business model. But they should a good understanding of the client’s business model and industry, this way they can develop more accurate expectations for financial statements assertions. 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? The three examples of risk factors are pressure, opportunities, and rationalizations. The pressure factor grew when NextCard wanted to improve growth as rapidly as possible. They tried to extend a $1 Billion dollars of credit to customers, while knowing they were making no profit. The Internet bubble, giving the huge demand of public accounting firms, created the opportunity factor. The internal control was poor as well giving the opportunity for fraud. The third risk factor or rationalizations is related to Lent and the executives of NextCard. When the selling price rose from $20 per share to $40 per share, they saw the opportunity to become instant millionaires. Which didn’t make some of there decisions seem so bad at the time. Also that eventually from themselves making so much money that their company would provide a profit somewhere down the line. So they just...
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...Anton Chaney-Harris 2/12/2015 ACCT 4420 Knapp Cases – NextCard 1. Should auditors evaluate the soundness of a client’s business model? Defend your answer. The auditors don’t have the full responsibility of looking over the client business model. But they should a good understanding of the client’s business model and industry, this way they can develop more accurate expectations for financial statements assertions. 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? The three examples of risk factors are pressure, opportunities, and rationalizations. The pressure factor grew when NextCard wanted to improve growth as rapidly as possible. They tried to extend a $1 Billion dollars of credit to customers, while knowing they were making no profit. The Internet bubble, giving the huge demand of public accounting firms, created the opportunity factor. The internal control was poor as well giving the opportunity for fraud. The third risk factor or rationalizations is related to Lent and the executives of NextCard. When the selling price rose from $20 per share to $40 per share, they saw the opportunity to become instant millionaires. Which didn’t make some of there decisions seem so bad at the time. Also that eventually from themselves making so much money that their company would provide a profit somewhere down the line. So they just...
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...Week three assignment one: Next Card, Inc. James Erkhart Professor: Ashley Harper Contemporary Auditing April 28, 2013 This research will show that they are still individuals will try to make a name for themselves. They are ways for individuals to try be dishonest and thinking they are getting away with the unethical situations, but with the strict rules and regulations in place they will get caught fast. Given PCAOB oversight of accounting firms and the AICPA code of conduct, discuss whether or not you believe that public accounting firms can successfully manipulate audit work papers and records of clients engaged in fraudulent activity. The PCAOB and AICPA has done a good job on the code of conduct but it doesn’t completely stop all fraudulent activity. I believe in my opinion you are still going to have fraudulent activity going on as long this world has business transaction taking place. I do agree that public accounting firm can successfully manipulate audit work papers and records if a client is doing fraudulent activity. The question always remain when will the fraudulent activity stop. The answer is never because as long we have businesses someone go to the dark side and do dishonest...
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...CASE 1.6 NEXTCARD, INC. Jeremy Lent, a chief financial officer (CFO) with Providian Financial Corporation decided to apply the marketing tactics used by Providian to establish an internet based company to offer Internet users a faster way to obtain credit cards. Lent hired dozens of marketing researchers to analyze the “surfing habits of Internet users. With this information the marketing team developed an Internet-based advertising campaign to target internet users that frequently used their credit cards and maintained large balances due to purchases made over the internet. NextCard advertised to new customers if they applied on line a response would be received within 30 seconds. Lents business model was a success and by 2000 and had more daily hits than any other credit card issuer. Other well established credit card affiliates referred potential clients to NextCard. NextCard had extended more than $1 billion of credit to internet customers but unfortunately profits were not immediate which the executives ignored to disclose in any press releases. A NextCard executive boasted in February of 2000 that the “company continues to beat our aggressive growth targets while maintaining very strong parameters and core elements of our business model” (Knapp, p 6). In 1999 the company produced a large loss of about $77.2 million. NextCard was able to take the company public with stock price initialing selling for $20 per share regardless of large losses for each reporting...
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...Case 1.6 NextCard Inc. Bryan Seabrook Saint Leo University Advanced Auditing ACC-412-CL02 Angela Sneed 28 March 2012 Case 1.6 NextCard Inc. When consumers and companies decide to invest in a company they are putting all of our trust in the companies 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...
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...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 facing a litany of federal charges. The San Francisco office of Ernst & Young audited NextCard’s periodic financial statements. When the news of the federal investigations of NextCard became public in the fall of 2001, Robert Trauger, the NextCard audit engagement partner, made a poor decision. That decision was to alter the fiscal 2000 audit workpapers for NextCard to make it appear that...
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...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...
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...Questions: 1. Should auditors evaluate the soundness of a client’s business model? Defend your answer. The engagement team should understand the business model in order to an understanding of the business activities and to properly evaluate and issue an opinion. 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 the engagement? First of all, the nature of NextCard operations was very risky. The fact that they authorized credit to customers without properly analyzing their credit report history was the reason of the losses. NextCard was primarily concern of having a large amount of customers regardless of the risk. Because NextCard was on online business, they should execute more caution when accepting clients. The audit engagement had the responsibility to have a clear understanding of the risk that NextCard was operating in and to establish a low detection risk due to a high risk of material misstatement. 3. What are the primary objectives an audit team hopes to accomplish by preparing a proper set of audit workpapers? By preparing a proper set of audit workpapers, the audit team ensures that an audit plan was properly follow, and that the account balances and events were properly audit. These workpapers serve as backpack for the submitted opinion. 4. Identify the generally accepted auditing standard violated by the E&Y auditors in this...
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...Individual case 1.6 NextCard, Inc. 131099123 李少东 Questiuons: 1. Should auditors evaluate the soundness of a client’s business model? Defend your answer. I think obviously auditors should evaluate the soundness of a client’s business model. Reasons are listed below: 1) According to the GAAS, the second standard of field work states: The auditor must obtain a sufficient understanding of the entity and its environment, 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...
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...| | | | | | | | | | | | | About the SEC Filings (EDGAR) Regulatory Actions Staff Interps Investor Info News & Statements | News Digest Press Releases What's New Upcoming Events Speeches Testimony Special Studies Complaint Data Open Meetings Other Webcasts | | Litigation Information for... Divisions | | | | | | | | | | | | | | | | | | | | Home > News & Statements > Press Releases Former Ernst & Young Audit Partner Arrested for Obstruction Charges and Criminal Violations of Sarbanes-Oxley ActFOR IMMEDIATE RELEASE 2003-123 U.S. Securities and Exchange Commission San Francisco District Office 44 Montgomery St., 11th Floor San Francisco, California 94104 (415) 705-2500 | U.S. Department of Justice United States Attorney Northern District of California 11th Floor, Federal Building 450 Golden Gate Avenue, Box 36055 San Francisco, California 94102 (415) 436-7200 FAX:(415) 436-7234 | US Attorney's Office and FBI Announce Guilty Plea of Former Ernst & Young Auditor to Obstruction ChargesSEC Charges Former Ernst & Young Employees for Alleged Role in Destruction of Audit Working PapersThomas C. Trauger, a former Ernst & Young partner who allegedly altered and destroyed audit working papers, was arrested this morning by FBI agents on criminal charges for obstructing investigations by both the Office of the Comptroller of the Currency...
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...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...
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...A CONTEMPORARY AUDITING REAL ISSUES AND CASES Seventh Edition Michael C. Knapp University of Oklahoma ; \ 1% SOUTH-WESTERN CENGAGE Learning- Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States CONTENTS SECTION 1 Comprehensive Cases 1 Case 1.1 Enron Corporation 3 Arthur Edward Andersen established a simple motto that he required his subordinates and clients to invoke: "Think straight, talk straight." For decades, that motto sewed Arthur Andersen & Co. well. Unfortunately, the firm's association with one client, Enron Corporation, abruptly ended Andersen's long and proud history in the public accounting profession. K Y TOPICS: history of the public accounting profession in the United States, scope of E professional services provided to audit clients, auditor independence, and retention of audit workpapers. ; Case 1.2 Just for FEET, Inc. 23 In the fall of 1999, just a few months after reporting a record profit for fiscal 1998, Just for Feet collapsed and filed for bankruptcy. Subsequent investigations by law enforcement authorities revealed a massive accounting fraud that had grossly misrepresented the company's reported operating results. Key features of the fraud were improper accounting for "vendor allowances" and intentional understatements of the company's inventory valuation allowance. K Y TOPICS: applying analytical procedures, identifying inherent risk and control risk E factors, need for auditors to monitor...
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...http://www.academia.edu/9339215/CASE_STUDY_OF_THE_NORTH_FACE_INC._AUDITING_ Summary Founded in the mid-1960's by Hap Klopp, The North Face, Inc., was a premier supplier of high-quality hiking, camping, and outdoor gear. In July 1996, North Face's went public. Initially, it sold at $14 per share, then peaked at $30 per share. In March 1999, NASDAQ halted public trading of North Face stock following the company's announcement it would be restating financial statements due to "bad bookkeeping".Christopher Crawford (CFO) boosted company sales by negotiating a barter transaction structured to avoid triggering materiality levels. Result: In May 2000, VF Corporation bought North Face for $2 per share. (Knapp, 2013) Question1 Should auditors insist that their clients accept all proposed audit adjustments, even those that have an "immaterial" effect on the given financial statements? Defend your answer. AnswerforQuestion1: • Auditors should not insist that clients accept all proposed audit adjustments. • Auditors are not perfect and clients should therefore have the right to reject proposed audit adjustments. • If a client does not accept a proposed audit adjustment, the auditor should generally be more suspicious as to the possibility of fraud and misstatement. Question2 Should auditors take explicit measures to prevent their clients from discovering or becoming aware of the materiality thresholds used on individual audit engagements? Would it be feasible for auditors...
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...OPER/023 ICMR Center for Management Research Amazon.com's Inventory Management This case was written by Purnima Pillai, under the direction of Sanjib Dutta, ICMR Center for Management Research (ICMR). It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. Licensed for use by the students of the Executive MBA Program, The ICFAI University. Not to be reproduced. 2004, ICMR. All rights reserved. To order copies, call 0091-40-2343-0462/63 or write to ICMR, Plot # 49, Nagarjuna Hills, Hyderabad 500 082, India or email info@icmrindia.org. www.icmrindia.org Abstract The case provides an overview of Amazon.com’s inventory management. Jeffrey Preston Bezos, the founder of Amazon.com, launched the company when he realized that Internet provided immense scope for online trading. Although the site was originally launched as an online bookstore it eventually offered several other products to keep abreast of the competition. The case takes a look at the different products and features offered on the site. The case also discusses Amazon's value propositions and its criteria for choosing strategic partners. It then elaborates on the strategies adopted by Amazon for managing its inventory. It also explains Amazon’s decision to outsource inventory management to distributors. The case takes a look at Amazon’s decision to sell the...
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...The Internet Business Review Issue 1 – October 2004 THE IMPACT OF E-COMMERCE INDUSTRY TURMOIL ON AMAZON.COM: A STRATEGIC PERSPECTIVE Russell Casey - Clayton State University, USA William Carroll - University of Phoenix, USA Edited by Faith W. Smalls Abstract Internet retailers face intense competition in their quest to gain market share due to the large number of competitors, ease of entry, low switching costs and the strength of existing multi-channel retailers. To survive, it is critical that online retailers create a sustainable competitive advantage in their e-commerce strategy and plan for long-term strategic positioning. The article uses a case study analysis of Amazon.com's strategy to develop an understanding of the e-commerce competitive environment and the importance of building a sustainable competitive environment to create value for the firm, its customers, and its shareholders. © 2004 The Internet Business Review The Internet Business Review Issue 1 – October 2004 Introduction Is the Internet a leech that sucks a company’s assets dry? Many investors, entrepreneurs, and managers pondered this billion-dollar question as hundreds of dotcoms collapsed over the last two years. Companies, such as Boo.com, Etoys, Onsale, @home, and Webvan, are extinct and many more cling to existence. The dreams of consumers, shareholders and other stakeholders have been shattered. From their inception, these dotcoms were going to revolutionize the world and...
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