The SEC's Case against California Micro Devices: A Lesson in Using Professional Skepticism and Obtaining Sufficient Appropriate Evidence
The SEC’s Case against California Micro Devices: A Lesson in Using Professional Skepticism and Obtaining Sufficient Appropriate Evidence
This particular case, involving the SEC, Coopers & Lybrand, and California Micro Devices, Inc. encompasses charges for neglecting to comply with auditing standards. The Securities and Exchange Commission makes these charges against Michael Marrie, audit partner, and Brian Berry, manager, of Coopers & Lybrand. There are three main areas in which the auditing standards were not in compliance, a write-off of accounts receivable, confirmation of accounts receivable and sales returns and allowances. The Securities and Exchange Commission make these accusations against Michael and Brian for failure to exercise due professional care along with lack of an adequate level of professional skepticism while performing this particular audit. There was also believed to be a lack of sufficient evidence made by the audit partner and manager.
1. General Standard: Due professional care is to be exercised in the performance of the audit and the preparation of the report.
Field Work: sufficient appropriate evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under the audit. As it pertains to violations of general standards as well as field work, it is evident that in the area of CMD’s write-off of accounts receivable both Michael and Brian showed a severe lapse in judgment in the testing and reporting. The team showed a lack of due professional care by not complying with GAAS. More so, Michael and Brian had several conversations with CMD’s chief accounting officer, and in those discussions, it was made evident that CMD’s goal was to maximize revenue by allocating a larger portion of the write-off to bad debt expense and a smaller portion to returns. Michael and Brian seem to have left the onus of the
This particular case, involving the SEC, Coopers & Lybrand, and California Micro Devices, Inc. encompasses charges for neglecting to comply with auditing standards. The Securities and Exchange Commission makes these charges against Michael Marrie, audit partner, and Brian Berry, manager, of Coopers & Lybrand. There are three main areas in which the auditing standards were not in compliance, a write-off of accounts receivable, confirmation of accounts receivable and sales returns and allowances. The Securities and Exchange Commission make these accusations against Michael and Brian for failure to exercise due professional care along with lack of an adequate level of professional skepticism while performing this particular audit. There was also believed to be a lack of sufficient evidence made by the audit partner and manager.
1. General Standard: Due professional care is to be exercised in the performance of the audit and the preparation of the report.
Field Work: sufficient appropriate evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under the audit. As it pertains to violations of general standards as well as field work, it is evident that in the area of CMD’s write-off of accounts receivable both Michael and Brian showed a severe lapse in judgment in the testing and reporting. The team showed a lack of due professional care by not complying with GAAS. More so, Michael and Brian had several conversations with CMD’s chief accounting officer, and in those discussions, it was made evident that CMD’s goal was to maximize revenue by allocating a larger portion of the write-off to bad debt expense and a smaller portion to returns. Michael and Brian seem to have left the onus of the