...22E21000 Auditing - Theory and Practice Case: UNITED STATES SURGICAL CORPORATION Case: UNITED STATES SURGICAL CORPORATION Answer 1. In our opinion, with proper use of analytical procedures Ernst & Whinney should have detected the overstatement of the leased assets. The following analytical procedures should have been used, at least at the planning and overall review stages of the audit. Trend analysis is the analysis of changes in an account balance over time. Ernst & Whinney could have compared the balances of the leased assets and rent income and their changes over the years. Also, Ratio analysis could have been used to compare the relationships between financial statement accounts. Ernst & Whinney could have used common size analysis, which is one example of ratio analysis, to set all the account balances as either a percentage of total assets or revenue and compare them to detect any abnormalities. Finally, Reasonableness testing might also have helped in detecting the errors in the leased assets. Reasonableness testing is the analysis of account balances or changes in account balances within an accounting period in terms of their “reasonableness” in light of expected relationships between accounts. For example, Ernst & Whinney could have used the number of lease contracts in effect to form expectations about the amount of rent income, the amount of depreciation expenses on leased asset, and the balances of the leased assets over the years 1979-1981...
Words: 2862 - Pages: 12
...was not justified in deciding that the costs were for tooling modifications. There was not sufficient evidence to come to this conclusion, just some complicated explanations from USSC and inaccurate purchase orders and invoices. The evidence was not relevant to the audit objective. The specific products with modifications should have been traced back to their purchase orders. Instead the auditors just took the explanation of these orders from management. Finally the reliability of the evidence was not high, USSC had a lot to lose if it was concluded that they were indeed general production and the General Manger for Lacey had changed his position numerous times. The only reliable evidence was that of the independent law firm that concluded the purchase orders and invoices were not for tooling modifications. 5 The evidence that hope collected that supports USSC's claim that the charges in question were in fact for tooling modifications was the General Manager of Lacey Corporation (A division of Barden Corporation) goes back on his previous statement and confirms that the purchase orders and invoices were in fact for tooling modifications. USSC explained their position and said that they had instructed Lacey to make certain tooling changes that would result in improved efficiency in production of USSC products. When the audit team asked to take a tour of the Lacey plant to examine the actual production process the Lacey General Manger informed the audit team that personnel often...
Words: 1371 - Pages: 6
...Issues 1. What 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? 2a. For USSC to extend the useful lives of several of its fixed assets and adopt a salvage value for many of these same assets for the first time, are these changes permissible under generally accepted accounting principles? 2b. Assuming these changes had a material effect on USSC’s financial condition and results of operations, how should the changes have been disclosed in the company’s financial statements? 2c. How should these changes have affected Ernst & Whinney’s 1981 audit opinion? 3a. What are the common sized financial statements for USSC for the period 1979-1981? 3b.What are the results of computed key liquidity, solvency, activity and profitability ratios for 1980 and 1981? 3c. What are the high risk financial statement items for the 1981 USSC audit? 4a. What factors in the auditor-client relationship create a power imbalance in favor of the client? 4b. What measures in the profession could have been taken to minimize the negative consequences of this power imbalance? 5a. In your opinion, did Hope satisfactorily investigate the possibility that there were additional suspicious tooling charges being paid and recorded by USSC? 5b. If not,...
Words: 3583 - Pages: 15
...MEMORANDUM To: File From: Date: October 24, 2012 Re: Craig - Structuring a cash transfer in the case of bankruptcy Facts Craig receives a $50,000 salary for running the day to day operations of Canterbury Corporation. He owns 100% of Canterbury’s stock, which is valued at $200,000. Canterbury currently needs $90,000 to meet short-term cash-flow needs, of which Craig is personally sending over to the business. We assume that when Canterbury goes bankrupt, there is no chance of further repayment of debt. Issues 1. How is debt treated at bankruptcy? 2. What are the tax consequences of contributing capital to a corporation when the company goes bankrupt? 3. If a loan is structured with the intent to protect investment, what are the tax consequences when the company goes bankrupt? 4. If a loan is structured to protect employment, what are the tax consequences at the time of bankruptcy? 5. Which of the above scenarios is the best way to structure a transfer for tax purposes? Conclusions 1. Debt will become wholly worthless upon bankruptcy. 2. The $90,000 capital contribution may be deducted as a capital loss to the extent of gains from such sales or exchanges, plus the lesser of $3,000 and the excess of such losses over such gains. 3. A nonbusiness bad debt may be deducted as a short term capital loss $90,000 in the year the loan becomes worthless to the extent of short term capital gains, plus the lesser of $3,000 and the excess of such losses over...
Words: 858 - Pages: 4
...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...
Words: 826 - Pages: 4
...There are three main purposes for this commission which include establishing sentence policies, practices, and guidelines for the federal courts to consult, advising and assisting Congress and the executive branch in the development of effective and efficient crime policies, and collecting, analyzing, and distributing a broad array of information on federal crime and sentencing issues to Congress, the executive branch, the courts, criminal justice practitioners, the academic community, and the public (USSC). Federal judges are provided with sentencing guidelines deemed by the USSC to be fair and consistent sentencing ranges by taking into account both the seriousness of the criminal conduct and the defendant’s criminal record. There are seven voting members who are appointed by the president and after confirmation by the Senate, these members serve six-year terms. At least three of the commissioners must be federal judges and no more than four may belong to the same political...
Words: 1647 - Pages: 7
...Chapter 04 The Corporate Culture -Impact and Implications True / False Questions 1.Due to diverse employee groups and management styles, the work culture of a large global firm in one country will differ significantly from the work culture of the same firm halfway around the world. FALSE Despite the fact that corporations have many locations, with diverse employee groups and management styles, an individual working for a large global firm in one country will share various aspects of her or his working culture with someone working for the same firm halfway around the world. 2. Corporate culture shapes, and is shaped, by the people who are members of the organization. TRUE While culture shapes the people who are members of the organization, it is also shaped by the people who comprise it. 3. Differing individual perception of culture makes it easier to define the specific culture within an organization. FALSE Defining the specific culture within an organization is not an easy task since it is partially based on each participant's perception of the culture. 4. In situations where an organization lacks strong leadership for ethical decision making despite the clarity of law, the business culture is likely to be the determining factor in the decision. FALSE In situations where the law provides an incomplete answer for ethical decision making, the business culture is likely to be the determining factor in the decision. 5. Organizations with similar missions...
Words: 4352 - Pages: 18
...2nd Floor 90 Pitts Bay Road Pembroke HM08 Bermuda http://www.tyco.com T Ict I ati nat nal t99 1 A An u e R t T y c o y n oe r n t e r o n ailo L t d . L1 d . 9 9 9n9n u a ln R a lp o re p o r t The Zurich Centre Ty c o I n t e r n a t i o n a l L t d . 19 99 Annual Report Get to know we are the world’s largest supplier of electronic and electrical connectors WE ARE THE WORLD’S LARGEST INSTALLER AND SERVICER OF we are the world’s largest producer of FIRE AND SECURITY industrial valves SYSTEMS w e h a v e g row n o u r ea rni ng s a t a 35% com pounded r ate for the past fi v e y ear s we lead the burgeoning global market in undersea fiber optic telecommunications W E H AV E 1 8 2 , 0 0 0 EMPLOYEES IN OVER 80 COUNTRIES AROUND THE we are a global leader in disposable health care we achieved sales of over $22 billion in fiscal 1999 we do not make toys . . . and never have 1 1. telecommunications and electronics If you knew Tyco last year, look again. The Company has evolved into a leader in the fast-paced, high-tech world of electronics. Our merger with AMP, the world’s largest maker of electrical connectors, and the acquisition of Raychem, a leading manufacturer of high-performance electrical components, created the nucleus for the formation of Tyco Electronics Corporation, the world’s largest supplier of passive electronic components. The diverse capabilities of AMP and Raychem, combined with...
Words: 41553 - Pages: 167
...Axia College Judicial Sentencing CJ/200 March 31, 2013 Judicial Sentencing In an attempt to control society by establishing and maintaining a set of rules, guidelines, and consequences, sentences are handed down by the judicial court system for all crimes that have been committed. Sentencing is the imposition of a criminal by a judicial authority (Schmalleger, 201). The five philosophical reasons for sentencing criminals are retribution, incapacitation, deterrence, rehabilitation, and restoration. The six forms of punishments are fines, community service, probation, imprisonment, parole, and capital punishment. The five philosophical reasons for sentencing criminals are listed as: retribution, incapacitation, deterrence, rehabilitation, and restoration. Retribution is commonly known and/or viewed as vengeance or “eye for an eye”. It is perhaps one of the earliest known forms of punishment that pre-dates before any formal justice systems were enacted (Schmalleger, 2011). Previously, this form of punishment was brought on by whoever believed they were the victim of a crime. The victim seeking retribution was judge, jury, and in some cases executioner. While this still occurs today, it is not as common as it once was due in part to our formal judicial system. Incapacitation is the act of imprisoning a criminal in order to reduce any harmful acts upon citizens or society in general (Schmalleger, 2011). This method uses confinement or prisons as a means to keep...
Words: 1121 - Pages: 5
...Roberts v. the Future Since his appointment, what have been the decisions of Justice Roberts on the following legal issues? •Drug legalization: On January 17, 2006, he dissented alongside Justices Scalia and Thomas (the most conservative Justices) in Gonzales v. Oregon. In this case, the USSC decided that the Controlled Substances Act (regulation of drugs according to a classification from the most harmful to the least dangerous) did not allow the US Attorney General to prevent GPs from prescribing drugs for the assisted suicide of the terminally ill, in accordance with an Oregon law. •Abortion: (a constitutional right since Row v. Wade, 1973) Gonzales v. Carhart, 2007: he was part of the majority to uphold the constitutionality of the Partial-Birth Abortion Act 2003. The latter does not prohibit abortion, but special method of abortion used in a few weeks before the birth. →“Ethical and moral concerns, including an interest in fetal life, represent "substantial" state interests.” •Affirmative Action: = a discriminatory policy, in contradiction with the equal protection clause of the 14th amendment. In Parents Involved in Community Schools v. Seattle School District No. 1, 2007: Selection based on race is constitutional as long as measures are narrowly tailored and justified by a compelling governmental interest. The first condition was not respected. Roberts: "the way to stop discrimination on the basis of race is to stop discriminating on the basis of...
Words: 306 - Pages: 2
...inserted themselves in jobs which were typical of men. Women in the American Civil War served in several, major roles on each side to help further her cause. The foundation of the United States Sanitary Commission(USSC) improved the medical service received by soldiers. As the war started up, several women began stirring with the feeling of uselessness, and felt the need to help the Union common soldiers fighting. A group of influential ladies met in New York to form the Women's Central Relief Association(WCRA) for the purpose of starting soldiers’ aid efforts. It was soon realized that the troops needed more help than the WCRA could provide. Modeling after the British Sanitary Commission, an organization to best serve the union soldiers was planned. The UCCS is a private relief agency built for providing items Union soldiers needed, but the government couldn’t fully supply. Although President Lincoln hesitated in the formation of backing the foundation in fear it would accomplish more harm than good, he signed a bill that gave government endorsing. The new government organization, the United States Sanitary Commission, was to be filled with unpaid volunteers serving only three months at a time. Civil War specialized American Historian, Steven E. Woodworth, comments, “...[the USSC] was a volunteer agency run under government auspices that sought to ensure the health and safety of Union Army soldiers during the American Civil War. It also collected donations of clothing, blankets, food...
Words: 3130 - Pages: 13
...reduce the disparity in the incarceration of minorities, making both crack and powder cocaine equal offenses. Currently crack cocaine, predominately used by minorities, carries greater sentences. The bill still has not passed, but in light of this bill, the United States Sentencing Commission voted in 2014 to reduce the sentencing guidelines that applied to the majority of federal drug crimes. In doing so, Judge Patti Saris, Commission Chair, said “This modest reduction in drug penalties is an important step toward reducing the problem of prison overcrowding at the federal level in a proportionate and fair manner. Reducing the federal prison population has become urgent, with that population almost three times where it was in 1991.” (USSC...
Words: 1385 - Pages: 6
...admissions practices of the University of Michigan Law School. She claimed that she was being discriminated against on the basis of her race in violation of her Constitutional rights pursuant to the Equal Protection Clause of the Fourteenth Amendment. ISSUES: Does the fact that the University’s law school considers race and ethnicity when it decides which students to admit violate the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution or the Civil Rights Act of 1964? COURTS: Trial Court: U.S. District Court = YES; Judgment granted to the Plaintiff Appellate Courts: Court of Appeals: 6th Circuit Court = NO; Reversed the Trail Court decision, Judgment for the Defendant. Supreme Court: USSC = NO; Affirmed the Appellate Court, Judgment for the Defendant. PREVAILING PARTY: Bollinger and the University of Michigan Win REASONING: 1. Any time racial classifications are imposed by a governmental agency, they must be analyzed using a Strict Scrutiny standard. Such classifications will only pass constitutional muster if they are narrowly...
Words: 436 - Pages: 2
...JAMES V. U.S., 61-1 USTC 9449, 7 AFTR2D 1361, 366 U.S. 213 (USSC, 1961) FACTS: In this particular case, the defendant, Eugene C. James, embezzled money from both his union employer as well as an insurance company and failed to include these funds as gross income for tax purposes. The taxpayer disputed that the embezzled money should not qualify as taxable income as the funds were already required to be returned. James used a previous decision from Commissioner of Internal Revenue v. Wilcox to show that the money was not taxable as he had “no claim of right” to the money because he no longer had possession of it. The court held that all income was to be taxed The court ultimately overturned the Wilcox case and ruled that the money was to be included in gross income because both legal and illegal earnings that are) acquired without the consensual recognition of an obligation to repay, are fully taxable. James was required to face legal penalties of three years in jail for his attempt at evading taxes in addition to the tax penalties of the crime. ISSUE: The issue being litigated in this case is whether embezzled funds should be a part of the embezzler’s gross income regardless of a repayment obligation. HOLDING: The Supreme Court ruled in agreement with the lower court’s decision and held that the defendant’s embezzled earnings were to be included on his tax return as gross income. LEGAL ANALYSIS: This ruling was supported by §61 of the Internal Revenue Code which...
Words: 534 - Pages: 3
...harder to compete. But when the foreign companies come to the states they all have to abide by the same rules. It helps tell the real story when it comes to mergers. I actually have experience with this issue before it became law and saw my CEO lose his shirt. We were a small consulting firm that was purchased by a larger company. My CEO was given stock options for the merger and two months after the merger it was discovered that the company was falsifying the financial reports and the stock plummeted my CEO last everything. Along with the employees that received stock options. I believe that the Enron case and other like it are the reasons that these laws have come to be. “On November 1, 1991, the United States Sentencing Commission (USSC) put into effect the Federal Sentencing Guidelines for Organizations” (FSGO, 1991). This was put into place to...
Words: 563 - Pages: 3
