Actg 440-Case 3 Essays

Words: 1018
Pages: 5

1. a) Since the treasurer diverted a substantial amount of the fund’s earnings to his personal use and systematically underrecorded income earned, we could consider this as a financial reporting fraud. The auditor would have identified the risk primarily through analysis of financial results and review of operational procedures.
b) The auditor should pay close attention to the changes of company’s financial result and analyze those changes in time to see if they are reasonable. Most auditors should have detected this kind of material misstatement in company’s financial results, because this defalcation is caused by a personal factor.
c) We should forecast its audit procedure in order to eliminate the risks in audit progress. Thus,
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b) Since this fraud is also associated with the management in this case. Therefore, communication with management or full broad would be necessary and useful to find the fraud evidence if the fraud is material. Most auditors should have detected this defalcation as long as they pay more attention on controlling the managerial procedure.
c) As I mentioned above, this defalcation was colluded by the supervisor and the payroll clerk. Therefore, the company should have preparation to meet this kind of scenario, which means alternative managements are essential to cover up this fraud. Separation of duties would have been effective in preventing or detecting the defalcation.

6. a) Since the fraud is manipulated by the branch manager through transferring amounts from dormant accounts to a factious account in order to withdraw this money eventually. This is a corruption and the auditor would have identified the risk primarily through review of operational procedures.
b) We should plan an adjusted audit procedure to ensure the audit adequately identify the fraud and collect enough evidence, which are specifically related to the potential risks. At the same time, we should also examine the monthly finding. If there’s doubtful point exist, we should plan an audit in time. As long as theses processes are done, most auditors should have detected the defalcation.
c) From this case, we could see it is important to keep skepticism of the management.