The US Surgical Case

1) Identify audit procedures that, if employed by Ernst & Whinney during the 1981 USSC audit, might have detected the overstatement of the leased and loaned assets account that resulted from the improper accounting for asset retirements.

There are various procedures that could be taken in to account that would, if properly implemented, would have detected the frauds that occurred within the companies. There are many control risks that should have been taking regarding inventory along with preliminary audit strategies for the inventory and substantive test to be done that would have raised many flags during the typical audits as well as in depth ones.

First and foremost, you would need to have a clear understanding of the entity and its environment. By recognizing these particular aspects, you would be able to better judge the effects and normal fluctuations in accounts. Basic audit objectives and procedures would have raised some issues. Analytical procedures are cost effective and alerts the auditor of misstatements. For instance, if auditors would have monitored the increase profit margins coupled by the increase of inventory turn days, then you would find possible inventory overstatements that occurred. Monitoring document ad records more closely would have raised suspension as well.

Control risks that should have been taken such as looking at the initiation production, the movement of goods and the recording of manufacturing and inventory transactions all have the potential to detect misstatements and other potential risks with in the company. Overall inventory controls should have been measured more effectively and efficiently.

As mentioned earlier, preliminary audit strategies are good procedures as well in detecting overstatements. Performing initial procedures on inventory balances and records that will be