Arthur Andersen did not rely on competent and sufficient audit evidence in auditing the valuation assertion related to FOF’s natural resources assets. According to Paragraphs . 21 of AU Section 326, to be competent, evidence must be both valid and relevant. Evidential matter obtained from independent sources outside an entity provides greater assurance of reliability for the purposes of an independent audit. However, many aspects of the National Resources Fund Account (NRFA) audit were completed by using the records of KRC instead of the fair market value.
The number they used may contain errors or even fraud. Since FOF had no means of valuing the assets proposed for investment by NRFA and did not possess the industry expertise to do so, the numbers obtained were not valid and reliable. Furthermore, Andersen staffers even worked on both the KRC and NRFA audits contemporaneously, which led to the lack of independence. When they found that KRC’s profits on sales to FOF were 68. 2% which were the highest, as compared with average profits on all sales of nearly 36%, Anderson did not do any further research to gather more evidence.
Their weak professional judgment led to the insufficient evidence. 2. Additional evidence to strengthen the Summary of 1968 Sales” would have been the inclusion of valuation and revaluations of properties resold. As was later discovered, King resold a “special inventory” of properties to FOF at a profit margin of anywhere from 98. 7% to 57%. Internal memos within the company would have been helpful in identifying these situations when compiling the “Summary of 1968 Sales. ” Arthur Andersen had this information available to them but chose not to disclose it to their other client, FOF.
The Essay on Audit Fee
Madison Thorne works in a public accounting firm and hopes to eventually be a partner. The management of Allnet Company invites Thorne to prepare a bid to audit Allnet’s financial statements. In discussing the audit fee, Allnet’s management suggests a fee range in which the amount depends on the reported profit of Allet. The higher its profit, the higher will be the audit fee paid to Thorne’s ...
A piece of evidence that could have strengthened the of the Summary of 1968 sales in the opposite direction would have been the apportioning of overhead and other charges not directly related to the sales. Whereas IOS might have had the highest profit margin, their sales could have required substantially more overhead allocation, which would have reduced the profit as a percentage of sales. Without understanding the allocation method or amount being allocated, it would be hard to determine absolutely that profit was such a high figure. 3. Based on Paragraphs . 09-. 0 of AU Section 329, the primary purpose of substantive analytical procedures is to provide assurance on certain audit objectives. However, depending on the objective, analytical procedures might not be enough, and tests of details would provide a more desired level of assurance. The auditor should understand the objectives of the audit, and create a plan that best suits his/her objectives by creating a combination of analytical procedures and tests of details. If I was on the audit team for FOF, I would use the “Consolidated Sales to Industry” information since it is applicable to successfully completing the audit.
For FOF, one of my audit objectives would be to provide assurance that the prices FOF was getting from vendors were at reasonable rates. Using the “Consolidated Sales to Industry” information, I would be able to see that the profits are not aligned and therefore, would need to investigate further. At this point, I could plan tests of details to further investigate the nature of these profits. An auditor has the obligation to show professional skepticism and be watchful for fraudulent activities. The heightened percentage of profits could be seen as a red flag.
All of these practices fall under the due diligence required by an auditor in reviewing their client when conducting an audit. 4. Generally, CPA firms have a responsibility under the Code of Professional Conduct to keep the information confidential. But in this case, we do not believe Arthur Andersen had a duty of client confidentiality to KRC that would prohibit the firm from disclosing to FOF any relevant knowledge it may have had related to KRC’s costs. Instead, in our opinion, Arthur Andersen had the obligation to disclose. Arthur Andersen audited Fund of Funds, as well as King Resources who sold the assets to Fund of Funds.
The Research paper on The Impact of Internal Auditing on the Telecommunication Industry
Internal auditing is an independent appraisal functions established within an organization to examine, review and evaluate operations as a service to management. The internal audit department is an internal part of the organization and function under the policies established by management. An audit is not limited to the review of the management process in the accounting and financial areas alone. ...
King Resources developed natural resource properties and agreed to be the sole vendor of such properties to FOF at prices no higher than those charged to KRC’s industrial clients. The same key audit personnel were involved in both audits and knew, or should have known, that the agreement was not being met but failed to inform FOF. Arthur Andersen should have disclosed this fact to FOF because 1) they had knowledge of the overcharges, 2) they knew of the terms of the agreement that were being violated, and 3) the language of their engagement letter produced a contractual obligation to reveal such information.
