Case Study: Financial Audit
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, control procedure would have been effective in preventing or detecting the defalcation could have been a separation of duties.
2. a) Since the purchasing agent usually set up wrong purchase orders to factious vendors, we could consider this as an asset misappropriation. The auditor would have identified the risk primarily through review of operational procedure.
b) Firstly, we should understand the business and identify what kind of risk the company will face, which operational area should be improved. Then, we should definitely plan an audit to try to find out the fraud. However, the defalcation will be difficult to be found by most auditors in this case, because the fictitious vender sale is only a small of portion (1%) of the annual sales.
c) In this case, the company should have an analytical procedure, which is related to company’s operational data. The auditor could try to find out the misstatement from not only the financial results, but also the relationships between financial results and operational records and data.
3. a) In this case, the social services workers of a state agency set up factious files for welfare recipients in order to collect monthly supports, and this is an asset misappropriation. The auditor
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, control procedure would have been effective in preventing or detecting the defalcation could have been a separation of duties.
2. a) Since the purchasing agent usually set up wrong purchase orders to factious vendors, we could consider this as an asset misappropriation. The auditor would have identified the risk primarily through review of operational procedure.
b) Firstly, we should understand the business and identify what kind of risk the company will face, which operational area should be improved. Then, we should definitely plan an audit to try to find out the fraud. However, the defalcation will be difficult to be found by most auditors in this case, because the fictitious vender sale is only a small of portion (1%) of the annual sales.
c) In this case, the company should have an analytical procedure, which is related to company’s operational data. The auditor could try to find out the misstatement from not only the financial results, but also the relationships between financial results and operational records and data.
3. a) In this case, the social services workers of a state agency set up factious files for welfare recipients in order to collect monthly supports, and this is an asset misappropriation. The auditor