Case 2.3
e Case 2.3
Questions:
1. Existence, completeness and valuation. The confirmations confirm or deny the stated amount of the receivable. The confirmation proves existence, that the client exists; completeness, balances that should be recorded are recorded; and valuation, the amount recorded is appropriate.(AU330.12) The year-end sales cutoff tests helps achieve a low audit rick for completeness and existence. (AU330.09) (AU 9350 1.02b)
AU330.12 - 2. Cooper & Lybrand should not have accepted Goldberg’s offer to contact Woo Wee regarding the confirmation letter. AU330.28. Auditor should maintain control of confirmation process. AU 330.29 states that a fax confirmation should be followed up by verifying with the sender and requesting the original confirmation sent in the mail. These mistakes did involve “negligence” on the part of the auditors. I would characterize the mistakes as “reckless”: not fraudulent because in according to AU316A.03 fraud is distinguished from error by whether the underlying action that results in the misstatement in financial statement is intentional or unintentional.
Research: * http://www.sec.gov/litigation/litreleases/lr16164.htm * Guilty Parties: * Joseph Sutton, age 45, who is a resident of Great Neck, New York and was the Chairman of Happiness Express’s Board of Directors as well as its President and Chief Executive Officer; * Isaac Sutton, age 48, who is a resident of Port Washington, New York and was Vice-Chairman of Happiness Express’s Board of Directors as well as its Executive Vice President and Chief Operating Officer; * Michael Goldberg, age 33, who is a resident of Boca Raton, Florida and was Happiness Express’s Chief Financial Officer; * Steven Weissman, age 32, who is a resident of Philadelphia, Pennsylvania and was a close friend of Michael Goldberg; and * Mitchell Goldberg, age 40, who is a resident of Woodbury, New York and was Michael Goldberg’s
Questions:
1. Existence, completeness and valuation. The confirmations confirm or deny the stated amount of the receivable. The confirmation proves existence, that the client exists; completeness, balances that should be recorded are recorded; and valuation, the amount recorded is appropriate.(AU330.12) The year-end sales cutoff tests helps achieve a low audit rick for completeness and existence. (AU330.09) (AU 9350 1.02b)
AU330.12 - 2. Cooper & Lybrand should not have accepted Goldberg’s offer to contact Woo Wee regarding the confirmation letter. AU330.28. Auditor should maintain control of confirmation process. AU 330.29 states that a fax confirmation should be followed up by verifying with the sender and requesting the original confirmation sent in the mail. These mistakes did involve “negligence” on the part of the auditors. I would characterize the mistakes as “reckless”: not fraudulent because in according to AU316A.03 fraud is distinguished from error by whether the underlying action that results in the misstatement in financial statement is intentional or unintentional.
Research: * http://www.sec.gov/litigation/litreleases/lr16164.htm * Guilty Parties: * Joseph Sutton, age 45, who is a resident of Great Neck, New York and was the Chairman of Happiness Express’s Board of Directors as well as its President and Chief Executive Officer; * Isaac Sutton, age 48, who is a resident of Port Washington, New York and was Vice-Chairman of Happiness Express’s Board of Directors as well as its Executive Vice President and Chief Operating Officer; * Michael Goldberg, age 33, who is a resident of Boca Raton, Florida and was Happiness Express’s Chief Financial Officer; * Steven Weissman, age 32, who is a resident of Philadelphia, Pennsylvania and was a close friend of Michael Goldberg; and * Mitchell Goldberg, age 40, who is a resident of Woodbury, New York and was Michael Goldberg’s