AUDIT CASE Essays

Submitted By 0005yud
Words: 819
Pages: 4
Open Document
Brief Recap of Facts
The engagement team is auditing Fresh Falls Water Purifiers, Inc; an SEC registered firm. The controller has refused to sign the management letter of representation on the basis that there is a water shortage due to a lack of rain and below average snowfalls last year. The controller is also concerned with the effects that water shortage could have on the sale of water purifies. The controller believes there needs to be an additional 10% added to the valuation allowance, which is considered material. The CEO and CFO, on the other hand, believe that the valuation is adequate if not excessive. Although the engagement team also believes that the valuation is adequate, the controller’s expertise is important and firm policies require the controller to sign the representation letter.

Most Important Issue
The controller of Fresh Falls Water Purifiers, Inc. has refused to sign the management representation letter. Firm policy requires that the controller sign the management representation letter and refusal may, according to AU § 333.13, place a limitation on the scope of the audit.

Alternative Decision
1. The auditors may disclaim the opinion as a result of the controller’s refusal to sign the management representation letter
2. The auditors may issue a qualified opinion.
3. The auditors may withdraw from the engagement.

Analysis of Alternatives
1. If the auditor feels that there is a limitation on the scope of the engagement as a result of the controller’s refusal to sign the management representation letter, a disclaimer of opinion may be issued. This alternative suggests that the engagement team was unable to obtain sufficient appropriate evidence to support the audit. In this case, there may be an issue with reliance on the evidence since the controller has refused to sign the letter. According to AU 580, parties who are responsible for the preparation and fair presentation of the financial statement should also provide written representation. Although the controller is not required to have written representation to be in accordance with the Generally Accepted Auditing Standards, we feel the controller plays a significant role in the compilation of the financial statements and specifically the presentation of the financial statements for Fresh Falls Water Purification, Inc. Furthermore, it is a firm requirement for the controller to sign the management representation letter for every engagement. A disclaimer of opinion may be an adequate alternative for the firm if the audit team does not feel comfortable relying solely on the Chief Executive Officer and the Chief Financial Officer’s written representations.
2. The next alternative is for the auditors to issue a qualified opinion. This alternative may be used if we believe Fresh Falls Water Purifiers, Inc. has maintained GAAP principles with the exception of a refusal to have written management representation. In the report, the auditors need to specify the controller’s refusal to sign the representation letter as this places a limitation on the scope of the engagement. Management representation cannot be fully relied on since the controller refuses to sign the representation letter. There is clear disagreement between the controller and management over accounting methods and this leads us to believe that other issues may exist that impact the financial statements. We would need to disclose
Show More

Related Documents: AUDIT CASE Essays

Case Study Of The Cloud Of Audit And Optination

CASE# 3 MACC 640 AUDIT & ATTESTATION Q 4a. Auditors are required to issue a standard Unqualified Opinion if there is a justified departure from GAAP that is immaterial. If the auditor determines that the justified departure from GAAP is material, Rule 203 of the AICPA Code of Professional Conduct permits the issuance of a standard Unqualified Opinion with an explanatory paragraph either before or after the opinion paragraph, to describe the departure from GAAP, its approximate effects (if…

Words 1382 - Pages 6

Nt1310 Unit 6 Audit Case

misstatement of financial statements and determine whether it is due to any error or fraud. It is a continuing process an auditor should do throughout the entire duration of the audit. Also by an auditor understanding its client’s environment and entity, it gives the auditor an opportunity to extent, design and perform any further audit procedures. The auditor should make risk assessments and any other relevant assertion levels based on its right and suitable understand of its environment. Some…

Words 1279 - Pages 6

Nt1310 Unit 6 Audit Case

Overall, auditors should reassess the level of audit risk with regard to executive compensation and benefits, take additional audit steps if necessary and communicate to the audit committee if fraud is found. However, auditors in this case failed to meet the requirements stated above. According to the requirements of GAAS, "The auditor should perform risk assessment procedures that are sufficient to provide a reasonable basis for identifying and assessing the risks of material misstatement, whether…

Words 497 - Pages 2

Real Estate Audit Case

assist her. She may not have been prepared for this immense project, but we were. She got us started by giving us internal information on each store’s sales history and lease status. We provided drive time demographic information and co-tenancy audits for each unit. We synthesized all of this data into a dossier of each site. This booklet included a series of highly polished tables and maps which summarized the basic market situation of each unit. She…

Words 207 - Pages 1

Ocean Audit Case Summary

new management turnover and accounting system change it becomes increasingly difficult to audit. With the change in controller, it appears he is frustrated with the company's new IT system which could mean an increase in control risk. -The distribution of the financial statements will eventually become public once Ocean does their IPO which will increase reputation risk.…

Words 571 - Pages 3

Case 5.7 Advanced Audit Essay

Advanced Audit Case 5.7 3.) Assurance services for large banks prove difficult, because there are thousands of transactions happening every day. The vastness of financial data that a large bank inputs, stores, manages and monitors makes it impossible to test every account at an equal risk level. This is where control reliance strategies come into place. Instead of running tests on the individual accounts only, auditors test the controls themselves to determine the likelihood of discrepancies. In…

Words 474 - Pages 2

Abc Entity Single Audit Case

ABC Entity – Single Audit Case After obtaining an understanding of the accounting system and related controls over financial reporting of ABC Entity, I decided to test a sample of sixty disbursements for compliance with the allowable costs/cost principle requirements of the Compliance Supplement. In the following paragraphs, I will provide an opinion on compliance related to the sampled items with support and justification for my decisions. The first set of items sampled for compliance included eight…

Words 1182 - Pages 5

Naval Audit Services Case Study

and more senior level auditor attend meetings to explain the new business process. Identify and distinguish We Organizational Strategy types Global Level Strategy are strategies that purse international markets (Organizational Strategy). The Naval Audit Service is a Federal Agency that serves the United States Navy and Marne Corps. To expand our competitive advantage in that foreign market, and whether or not it can meet the specific needs of consumers in that foreign market is insensible. Evaluating…

Words 357 - Pages 2

Question 1 Essay

Title: An audit report is not a guarantee, certification, or even a statement of fact. Rather it is the auditor’s opinion about the compliance of a company's financial statements with Generally Accepted Accounting Principles (“GAAP”) based on the auditor's work performed under Generally Accepted Auditing Standards (“GAAS”) ABSTRACT This is a discussion that focuses on GAAP and GAAS standards of auditing. It is a write up that tackles important factors in the auditing field and ensures…

Words 641 - Pages 3

Essay on Case 7.1 Anne Aylor

Anne Aylor, Inc. 229 Determination of Planning Materiality and Tolerable Misstatement ot he r c aSe S t h at diScuSS topicS related to thiS Section 5.6 Scoping and Evaluation Judgments in the Audit of Internal Control over Financial Reporting 12.1 EyeMax Corporation . . Evaluation of Audit Differences . . . . . . . . . . . . . . . . . . . . . . . Sarbox Scooter, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 185 369 379 12.2 Auto Parts, Inc. . . . . . . . . . .…

Words 1976 - Pages 8