Nama : Delvita Dita Putri Anggrayni
NPM :20207269
Kertas Kerja Pemeriksaan 1
IP 1
1. According to Section 404 of SOX a public company’s annual report must include an internal control report. What are the two required elements of management’s report on internal control?
The two required elements of management’s report on internal control are:
1. state the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting
2. contain an assessment, as of the end of the most internal control structure and procedures of the issuer for financial reporting.
2. What obligation does a public company’s auditor have with respect to internal control over financial reporting according to Section 404?
With respect to the internal control over financial reporting required by subsection each registered public accounting firm that prepares or issues the audit report for the issuer shall attest to, and report on, the assessment made by the management of the issuer. An attestation made under this subsection shall be made in accordance with standards for attestation engagements issued or adopted by the Board. Any such attestation shall not be the subject of a separate engagement.
.
Sumber:
Sarbanes_oxley_Act_of_2002.pdf (http://wps.prenhall.com/bp_arens_audit_12/68/17414/4458021.cw/index.html)
IP 2
1. Who serves on the PCAOB’s standing advisory group (SAG)? How often does the group meet?
SAG includes of 30 highly qualified persons who representing the auditing profession, public companies, investors, and others. This board also granted six organizations observer status with speaking rights at all SAG meetings: The Auditing Standards Board of the American Institute of Certified Public Accountants, the Department of Labor, the Financial Accounting Standards Board, the Government Accountability Office, the International Auditing and Assurance Standards Board, and the Securities and Exchange Commission.
Douglas J. Anderson
Corporate Auditor, The Dow Chemical Company
Midland, Mich.
John L. (Arch) Archambault
National Managing Partner of Professional Standards, Grant Thornton LLP
Chicago, Ill.
Dennis R. Beresford
Ernst & Young Executive Professor of Accounting, Terry College of Business, The University of Georgia
Athens, Ga.
Boards of Directors, Various Public Companies
Neri Bukspan
Chief Quality Officer and Chief Accountant, Credit Market Services, Standard & Poor’s Financial Services, LLC
New York, N.Y.
Douglas R. Carmichael
Claire and Eli Mason Professor of Accountancy, Zicklin School of Business, Baruch College
New York, N.Y.
James D. Cox
Brainerd Currie Professor of Law, School of Law, Duke University
Durham, N.C.
Sharon S. Fierstein
Partner, Litigation & Corporate Financial Advisory Services, Marks Paneth & Shron, LLP
New York, N.Y.
Margaret M. Foran
Chief Governance Officer, Vice President, and Corporate Secretary
Prudential Financial, Inc.
Newark, N.J.
Michael J. Gallagher
Assurance Partner and U.S. National Office Leader, PricewaterhouseCoopers LLP
Florham Park, N.J.
Gaylen R. Hansen
Audit Partner and Director of Accounting and Auditing Quality Assurance, Ehrhardt Keefe Steiner & Hottman PC
Denver, Colo.
Gail L. Hanson
Deputy Executive Director, State of Wisconsin Investment Board
Madison, Wis.
Patricia Ann K. (Kiko) Harvey
Vice President, Corporate Audit, Delta Air Lines
Atlanta, Ga.
Gary R. Kabureck
Vice President and Chief Accounting Officer, Xerox Corporation
Norwalk, Conn.
Anthony S. Kendall
Chief Executive Officer, Mitchell & Titus LLP
New York, N.Y.
Wayne A. Kolins
Partner and National Director of Assurance, BDO Seidman, LLP; Global Head of Audit and Accounting, BDO International
New York, N.Y.
Jeffrey P. Mahoney
General Counsel, Council of Institutional Investors
Washington, D.C.
Jamie S. Miller
Vice President, Controller and Chief Accounting Officer, General Electric Company
Fairfield, Conn.
Mary Hartman Morris
Investment Officer, Global Equity, California Public Employees’ Retirement System
Sacramento, Calif.
Steven B. Rafferty
Professional Practices Partner, BKD, LLP
Springfield, Mo.
Samuel J. Ranzilla
Audit Partner and National Managing Partner, Audit Quality and Professional Practice, KPMG LLP
New York, N.Y.
Kevin B. Reilly
Assurance Partner, National Professional Practice Group, Ernst & Young LLP
New York, NY
Barbara L. Roper
Director of Investor Protection, Consumer Federation of America
Washington, D.C.
Lawrence J. Salva
Senior Vice President, Chief Accounting Officer and Controller, Comcast Corporation
Philadelphia, Pa.
Kurt N. Schacht
Executive Director, Centre for Financial Market Integrity, CFA Institute
New York, N.Y.
James V. Schnurr
Senior National Professional Practice Director, Audit and Enterprise Risk Services, Deloitte & Touche LLP
Wilton, Conn.
R. Harold Schroeder
Director of Relative Value Arbitrage, Carlson Capital
Greenwich, Conn.
Damon A. Silvers
Director of Policy and Special Counsel, AFL-CIO
Washington, D.C.
Paul J. Sobel
Vice President, Internal Audit, Mirant Corporation
Atlanta, Ga.
Lynn E. Turner
Senior Advisor and Managing Director, LECG
San Francisco, Calif.
John W. White
Partner, Corporate Department, Co-chair of the Corporate Governance and Board Advisory Practice, Cravath, Swaine & Moore, LLP
New York, N.Y
The SAG meets :two or three times per year.
- Review the most recent agenda for the SAG and briefly describe some of the key issues discussed during that meeting.
The key issues discussed during the meeting are:
- Type of risk of material misstatement
- The adequacy of fair value disclosure
- Specialist’s work
- Scope of a proposed standard on using the work of specialist
- structural or cultural impediments to audit committees obtaining the information they need to fulfill their responsibilities to oversee the work of the auditor
- What kind of Audit committee communications can improve
- Requirement for auditor to discuss his assessment of the quality of disclosures in financial statements with the audit committee
- Additional communication requirements which benefit to audit committee
- The board consider to provide information about the firm and the type of information
- Risk associated with related party transaction
- Financial relationships between auditor and management.
- Undisclosed related party transaction and relationships.
- Other relationships that might pose risk similar to related party transaction
- Management assertion regarding equivalency with Arm’s-Length terms.
Source:
http://www.pcaobus.org/Standards/Standards_Setting.aspx
www.google.com
IP 3
- The EDGAR web site describes many SEC-required forms. Explain the purpose of each of the following SEC forms:
- Form 8-K : This is a report of unscheduled material events or corporate changes deemed of importance to the shareholders or to the SEC. Items 1-3 and 8 must be reported in an 8-K within 15 days of the event. Items 4 and 6 must be filed within 5 business days after the event, and Item 5 is optional, meaning there is no mandatory time for filing.
- Form 10-K : This report provides a comprehensive overview of the registrant. The report must be filed within 90 days after close of company’s fiscal year and contains the following items of disclosure
- Form 10-KSB : This is 10-K form which used a small business. Used for provides a comprehensive overview of the registrant.
- Search EDGAR for the 10-K filings of the three companies listed below. Within the 10-K filings locate the independent auditor’s report and identify the type of opinion it is (e.g., unqualified, qualified, disclaimer, adverse) and what type of explanatory paragraph, if any, the opinion contains (e.g., going concern or emphasis of a matter). (Hint: You may be able to search the company’s 10-K by using the Internet browser’s “Find” command typically located in the “Edit” menu.)
- General Motors Corporation (10-K filed 3-13-2003)
Regarding to the 10-K filing of General Motors Corporation page 36, We can identify that the type of auditor’s opinion is unqualified.
Independent Auditors’ Report
General Motors Corporation, its Directors, and Stockholders:
We have audited the Consolidated Balance Sheets of General Motors Corporation and subsidiaries as of December 31, 2002 and 2001, and the related Consolidated Statements of Income, Cash Flows, and Stockholders’ Equity for each of the three years in the period ended December 31, 2002. Our audits also included the Supplemental Information to the Consolidated Balance Sheets and Consolidated Statements of Income and Cash Flows and financial statement schedule listed at Item 15 (collectively, the financial statement schedules). These financial statements and the financial statement schedules are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of General Motors Corporation and subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the financial statements, effective January 1, 2002, General Motors Corporation changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”
| /s/DELOITTE & TOUCHE LLP
———————— DELOITTE & TOUCHE LLP
Detroit, Michigan January 16, 2003 (March 12, 2003, as to Note 26) |
-
- Ford Motor Company (10-K filed 3-14-2003)
Regarding to the 10-K filing of Ford Motor Company page 130, We can identify that the type of auditor’s opinion is unqualified.
Report of Independent Accountants
To the Board of Directors and Stockholders
Ford Motor Company:
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Ford Motor Company and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the accompanying sector balance sheet and the related sector statements of income and cash flows, presented for purposes of additional analysis, present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. The consolidated and sector financial statements (collectively, the “financial statements”) are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 7 to the consolidated financial statements, on January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, which changed the method of accounting for goodwill and other intangible assets. In addition, as discussed in Note 3 to the consolidated financial statements, on January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long- Lived Assets”, which changed the method of accounting for discontinued operations. Also, as discussed in Note 17 to the consolidated financial statements, on January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
January 17, 2003
-
- The Home Depot (10-K filed 4-21-2003)
Regarding to the 10-K filing of The Home Depot Inc. we can identify that the type of auditor’s opinion is unqualified.
INDEPENDENT AUDITORS’ REPORT
The Board of Directors and Stockholders
The Home Depot, Inc.:
We have audited the accompanying consolidated balance sheets of The Home Depot, Inc. and subsidiaries as of February 2, 2003 and February 3, 2002 and the related consolidated statements of earnings, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended February 2, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Home Depot, Inc. and subsidiaries as of February 2, 2003 and February 3, 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended February 2, 2003, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
Atlanta, Georgia
February 24, 2003
Source: http://www.secinfo.com/d17xw.11v.htm
http://www.sec.gov/about/forms/secforms.htm
http://www.gm.com/corporate/investor_information/sec/
IP 4
- What specific client-related matters prompted Goldstein and Morris’s decision to conceal certain information from the PCAOB?
The specific client-related matters:
Federal law prohibits a registered public accounting firm from providing its issuer audit clients with certain bookkeeping services
he and two subordinates discussed what to do about the fact that the Firm had provided NYFW and RTG with the services
2. What sanctions were imposed on the firm, the managing partner, and the two other partners involved in the investigation? Were these sanctions fair?
The sanction were:
1. Goldstein & Morris, CPAs, P.C.’s registration with the Board is revoked
2. Edward B. Morris is barred from being an associated person of registered public accounting firm
The sanction for Goldberger were:
1. Alan J. Goldberger ir hereby censured
2. William A. Postelnik is hereby censured
I think the sanctions were fair because there were so many fraud found by the PCAOB Board.
Source:
http://www.pcaobus.org/Enforcement/Disciplinary_Proceedings/index.aspx
http://www.pcaobus.org/Enforcement/Disciplinary_Proceedings/2005/05-24_Goldstein_and_Morris.pdf
http://www.pcaobus.org/Enforcement/Disciplinary_Proceedings/2005/05-24_Goldberger_and_Postelnik.pdf
IP 5
- What allegedly occurred according to the complaint underlying LR No. 18487?
- Blackwelder prepared and arranged to have issued at least one false press release announcing a major licensing deal for STWA that, in fact, did not exist.
- Blackwelder posted positive messages about STWA on Internet stock message board without disclosing, as required, that he received shares of STWA as payment for the promotion.
- Blackwelder posting unbiased views about STWA and its stock, when he was actually paid promoter.
- What section(s) of federal securities laws was the primary named individual, Billy Blackwelder, accused of violating?
Section 17(b) of the security Act and Section 10(b) of the Securities Exchange Act and Rule 10b 5 thereunder
Source:
http://www.sec.gov/litigation/litreleases/lr18487.htm
IP 6
- Read the statements issued by the PCAOB and SEC on May 16, 2005 and briefly describe the apparent underlying cause(s) for auditors’ failure in applying the concept of reasonable assurance. Hint: Read the portion of the PCAOB’s policy statement entitled “The Importance of Professional Judgment.”
Because they use one-size-fits-all audit plan driven by standardized checklists that may have little to do with the unique issues and risks of the particular client’s financial reporting processes.
- Why do you think firms had such difficulty in applying the concept of reasonable assurance during the first year of implementation of Section 404?
Because they have a difficulty in applying the standard to audit clients in different industries and different size of company. They also have a difficulty to focus their work on areas that pose higher risks of misstatement, due either to errors and fraud.
IP 7
- Read about ACL’s solution for data quality and fraud detection. How might an auditor use ACL’s data analytics software for these two purposes?
For fraud detection:
Technology makes it possible to quickly analyze complete data populations. Instead of pulling random samples or relying on those all-too-rare hotline calls, you can actively target specific data patterns, activities and exceptions that uncover fraud.
ACL technology helps detect and prevent fraud by allowing organizations to:
- Test 100 percent of transactions
- Quickly access data from any source
- Flag all suspicious activity
- Automate testing to free up resources for more strategic investigations
- Summarize fraud risks for management review
For data quality:
ACL solutions allow audit teams to work more productively and efficiently by enabling direct immediate access to all of the source data required for audit analysis and by harnessing the power of server technology to rapidly analyze limitless volumes of any type of transactional data.
- How might ACL be used by a company to comply with the requirements related to internal control over financial reporting? Hint: Take a look at ACL’s Continuous Controls Monitoring software.
Continuous Monitoring is the method that a business process owner or management uses to ensure that internal controls related to business activities and financial reporting are working as intended. By providing perpetual assessment of key controls and insight into transactions, continuous monitoring can help organizations quickly identify issues that significantly impact the bottom line.
ACL offers another continuous monitoring product for organizations interested in continuously monitoring specific business areas. Our CCM product is designed with the following plug and play modules:
- CCM Purchase to Payment Module
- CCM Purchasing Card Module
- CCM Travel & Entertainment Module
- CCM General Ledger Module
- CCM Payroll Module
- CCM Order to Cash Cycle Module
Source:
IP 8
Internet Problem 8-1 (Industry Research and Client Acceptance)
The vignette at the beginning of Chapter 6 in the text contains a brief description of the ZZZZ Best fraud. One area where the auditors were particularly criticized in that audit had to do with the auditors’ lack of industry knowledge. With hindsight it appeared that the fraud should have been easily detected because ZZZZ Bests’ large restoration contracts were in excess of $7 million while the largest restoration jobs on record in the insurance restoration industry were less than $3 million.
You have been approached by On the Sunny Side, a team sports uniform designer and manufacturer for women, about performing the company’s financial statement audit. The company began operations eight years ago and has experienced strong growth in the last several years. Teri Kloth, the chief executive officer, has told you that her company expects production in 2004 to be 450,000 units. She also provided summary historical financial and operating data regarding unit sales. In 2002 and 2003, the company reported sales of 365,000 and 402,000 units, respectively.
Are On the Sunny Side’s 2002 and 2003 unit sales reasonable? Why or why not? (Hint: Visit the U.S. Census Bureau’s web site. Once you are at the site, go to the “Business” section and then to the “Manufacturing” sector-specific data section. Once you are there, locate the Current Industrial Reports. Next search the CIRs by Subject Title for Apparel. Data about women’s team sports uniforms can be found by search for “Apparel.” Use the most current annual report for your analysis.
It’s fair.
Source: U.S. Census Bureau’s
Internet Problem 8-2 (Obtain Client Background Information)
Planning is one of the most demanding and important aspects of an audit. A carefully planned audit increases auditor efficiency and provides greater assurance that the audit team addresses the critical issues. Auditors frequently prepare audit planning documents that provide client and industry background information and discuss important accounting and auditing issues related to the client’s financial statements.
Your assignment is to find and document information for inclusion in the audit planning memorandum. You should obtain the necessary information by downloading a public company’s most recent annual report from its web site (your instructor will give you the company’s name). You may also use other sources of information such as recent 10-K filings to find additional information. You should address the following matters in four brief bulleted responses:
- Brief company history.
- Description of the company’s business (for example, related companies and competitors).
- Key accounting issues identified from a review of the company’s most recent annual report. (Note: Do not concentrate solely on the company’s basic financial statements. Careful attention should be given to Management’s Discussion and Analysis as well as the Footnotes.)
- Necessary experience levels (that is, years of experience and industry experience) required of the auditors to be involved in the audit.
- Company history
The coca cola company is the largest manufacturer, distributor and marketer of nonalcoholic beveragr concentrates and syrups in the world. Finished beverage productcs bearing our trademarks, sold in United States since 1886, are now in more than 200 countries. Along with coca cola, which is recognized as the world’s mast valuable brand, we market four of the world’s top five nonalcoholic sparkling brands, including diet coke, Fanta and Sprite.
The Coca Cola Company incorporated in September 1919 under the laws of the State of Delaware and succeded to the business of a Georgia corporation with the same name that had been organized in 1892.
- Company’s business
The Coca Cola Company business is nonalcoholic beverages-principally sparkling beverages, but also variety of still beverages. They manufacture beverage concentrates and syrups, which we sell to bottling and canning operations, fountain wholesalers and some fountain retailers, as well as finished beverages, which we sell primarily to distributors.
The Coca Cola Company has six operating segments, they are in: Eurasia and Africa, Europe, Latin America, North America, Pacific, Bottling Investments, and Corporate.
Multon, Russian Juice business operated as a joint venture with Coca Cola Hellenic Bottling Company S.A. The company also has joint venture with Nestle, Ilko Coffee International, S.r.1. in Brazil and Mexico.
The Competitors:
One of primary competitor for The Coca Cola Company is PepsiCo Inc. Other significant competitors include, but are not limited to, Nestle, Dr Pepper Snapple Group, Inc., Groupe Danone, Kraft Foods Inc., and Unilever.
The competitive factors:
Pricing, advertising, sales promotion programs, product innovation, increased efficiency in production techniques, the introduction of new packaging, new vending and dispensing equipment, and brand and trademark development and protection.
- Key accounting issues
Management Analysis for accounting:
Management consolidated financial statements are prepared in accordance with accounting principles generally accepted in United states, which require management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. They believe that their most critical accounting policies and estimates relate to the following:
a. Basic of presentation and consolidation
They use equity method to account for investment in companies. Their consolidated net income includes their Company proportionate share of the net income or loss of these companies.
b. Recoverability of noncurrent assets
They perform recoverability and impairment test of noncurrent assets in accordance with accounting principles generally accepted in the US. For certain assets, recoverability and/or impairment tests are required only when conditions exist that indicated the carrying value may not be recoverable. For other assets, impairment tests are required at least annually, or more frequently, if events or circumstances indicate that an asset may be impaired.
c. Investment in equity and debt securities
The carrying value of investment in equity securities are determined using the equity method, or the cost method, or at fair value.
IP 9
- Imagine that you are employed as an auditor in a CPA firm that performs the audit of Microsoft. Your firm’s materiality guidelines indicate that overall engagement materiality should be set at an amount between five and ten percent of income before taxes.
a. Apply your firm’s guidelines to Microsoft’s 2003 financial statements. What percentage of income before taxes do you believe is appropriate? Why? What do you believe overall engagement materiality should have been for 2003?
To decide the materiality we should:
- Determine the initial consideration of the materiality
- Allocate initial consideration of materiality to the segment
- Estimated total errors in the segment
- Estimate the combined error
- Compare estimates with the combined initial consideration of the materiality
The percentage of income before taxes are between 5% to 10%, because if the combined total score lower than 5% is not considered material and require the presence of a variety of qualitative factors.
b. Given Microsoft’s 2003 balance sheet, what asset line items would be allocated the highest amount of tolerable misstatement? Why?
BALANCE SHEETS
| (In millions) | ||||||
|
|
||||||
| June 30 | 2002 | 2003 | ||||
| Assets | ||||||
| Current assets: | ||||||
| Cash and equivalents | $ | 3,016 | $ | 6,438 | ||
| Short-term investments | 35,636 | 42,610 | ||||
|
|
|
|
||||
| Total cash and short-term investments | 38,652 | 49,048 | ||||
| Accounts receivable, net | 5,129 | 5,196 | ||||
| Inventories | 673 | 640 | ||||
| Deferred income taxes | 2,112 | 2,506 | ||||
| Other | 2,010 | 1,583 | ||||
|
|
|
|
||||
| Total current assets | 48,576 | 58,973 | ||||
| Property and equipment, net | 2,268 | 2,223 | ||||
| Equity and other investments | 14,191 | 13,692 | ||||
| Goodwill | 1,426 | 3,128 | ||||
| Intangible assets, net | 243 | 384 | ||||
| Other long-term assets | 942 | 1,171 | ||||
|
|
|
|
||||
| Total assets | $ | 67,646 | $ | 79,571 | ||
|
|
|
|
|
|||
| Liabilities and stockholders’ equity | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 1,208 | $ | 1,573 | ||
| Accrued compensation | 1,145 | 1,416 | ||||
| Income taxes | 2,022 | 2,044 | ||||
| Short-term unearned revenue | 5,920 | 7,225 | ||||
| Other | 2,449 | 1,716 | ||||
|
|
|
|
||||
| Total current liabilities | 12,744 | 13,974 | ||||
| Long-term unearned revenue | 1,823 | 1,790 | ||||
| Deferred income taxes | 398 | 1,731 | ||||
| Other long-term liabilities | 501 | 1,056 | ||||
| Commitments and contingencies | ||||||
| Stockholders’ equity: | ||||||
| Common stock and paid-in capital – shares authorized 24,000; Shares issued and outstanding 10,718 and 10,771 | 31,647 | 35,344 | ||||
| Retained earnings, including accumulated other comprehensive income of $583 and $1,840 | 20,533 | 25,676 | ||||
|
|
|
|
||||
| Total stockholders’ equity | 52,180 | 61,020 | ||||
|
|
|
|
||||
| Total liabilities and stockholders’ equity | $ | 67,646 | $ | 79,571 | ||
|
|
|
|
|
|||
See accompanying notes.
Account receivable would be allocated the highest amount of tolerable misstatement, because it has more value than the other assets so if auditor allocate a small amount for tolerable misstatement, it will need more evidence and it will increase the audit cost for auditor.
Source:
http://www.microsoft.com/msft/SEC/default.mspx
IP 10
- Use EDGAR to search for Tri-Valley Corporation (TVC) and Monarch Staffing Inc. Find TVC’s 10-K and Monarch’s 10-KSB for the year ended 12-31-06.
For TVC 10-K: http://www.sec.gov/Archives/edgar/data/22551/000002255107000009/tvc123106-10k.htm
For Monarch’s 10-KSB: http://www.secinfo.com/d12PKm.u1p.htm
- Did either company report material weaknesses in ICFR? If so, what were the weaknesses?
Yes, both companies reported material weaknesses in ICFR for the year ended 12/31/06. TVC reported deficiencies “related to controls over the accounting for complex transactions to Ensure such transactions are recorded as necessary to permit preparation of financial statements and Disclosures in accordance with generally accepted accounting principles. Such transactions included: TVC reported deficiencies “related to the control of the complex accounting for the transaction to ensure that transactions are recorded as necessary to permit preparation of financial statements and disclosure in accordance with accounting principles generally accepted. The transaction includes:
- proved and unproved properties
- Loan guaranteed with restricted common stocks, loan secured by restricted common stock,
- Deferred income taxes,
- Discontinued operations from the sale of our interest in Tri-Western Resources, and stop operation from the sale of our interest in Tri-West
- Share-based payment arrangements
Monarch Staffing deficiencies reported as follows: Monarch staffing shortages reported as follows::
We did not maintain a sufficient complement of personnel with an appropriate level of accounting knowledge, experience, and training in the application of U.S generally accepted accounting principles commensurate with our existing financial reporting and the requirements we face as a public company. Accordingly, management has concluded that this control deficiency is a material weakness, and that contributed to the following material weaknesses.
We did not maintain effective controls with respect to reviewing and authorization of related-party transactions. Specificially, our control procedures did not prevent the company from making payments on behalf of other related parties. Accordingly, management has concluded that this control deficiency constitutes a material weakness. “Particularly, our monitoring procedures did not prevent the Company made payments on behalf of related parties other. Therefore, management has concluded that this control deficiency is a material weakness.
IP 11
- What are three common pitfalls that should be avoided during brainstorming sessions? How can these problems be avoided?
Three common pitfalls that should be avoided during brainstorming session are:
- Group domination
- Social loafing
- Groupthink
- Groupshift
These problems can be avoided by:
- Assign homework (give the theme of the next discussion so team member can focus on coming up with ideas about how and where the entity is susceptible)
- Establish ground rules (Leader should establish a strong foundation for brainstorming sessions by communicating fundamental ground rules before a session begin)
- Set the tone (The leader should genuinely encourage all audit team members)
- Take a “zero tolerance” stance on criticism (The leader must make it clear that no criticism out any issue presented will be allowed while the group is generating ideas about fraud risk.
- Encourage more not less (Participants should make every effort to generate as many ideas as possible about how and where the entity may be susceptible to fraud and how management might conceal its action.
- Credit the group, not individuals (Leader should assign credit for ideas generated to the group as a whole rather than to a contributing member.
- Manage group size and composition (team leader must not only include the ones who will be key to discussion at hand, but also understand how group size might affect the outcomers.
- What are three important techniques to improve the effectiveness of a brainstorming session?
Three important techniques to improve the effectiveness of a brainstorming session are:
- Open brainstorming: is an unstructured technique auditors can use in which discussions follow very few rules and procedures.
- Round-robin brainstorming: is a structured technique characterized by a session that begins with a period of no talking during which team members engage in silent “self-brainstorming,” or “brainwriting,” to form their ideas.
- Electronic brainstorming: is an increasingly popular technique that combines open brainstorming with software technology.
Source:
http://www.aicpa.org/pubs/jofa/dec2003/beasley.htm
IP 12
- How does IT governance fit into an organization’s overall governance?
IT governance fits into an organization’s overall governance by:
- Using the leadership and organizational structure and processes to extends the enterprise’s strategies and objectives.
- Become an effective communication among all parties based on constructive relationships.
- Using certification process for professionals who have a significant management, advisory, or assurance role relating to the Governance of IT.
- The Executive Summary makes five recommendations for management with respect to IT. What are these recommendations?
- Establish an overall cross-functional compliance team and a dedicated sub team managed by a director level person. The team should be supported by C-level executives and include executive from finance, IT, Legal, marketing and affected business units.
- Coordinate IT activities within the scope of an overall security and disaster recovery plan.
- Have finance or audit take final responsibility to ensure compliance wit SOX. Marketing should take the lead on customer data usage decisions affecting privacy as well as the Do Not Call Registry. IT is one input to the whole process.
- How would an auditor likely view a company’s IT environment if the organization had implemented the above recommendations?
A judgmental approach to assessing the effect IT has on the auditor’s study and evaluation of internal controls and the nature and extent of substantive testing may no longer be adequate. Such an approach allows auditors too much leeway to decide whether to perform tests of controls or bypass such tests and only perform substantive tests. SAS 941 provides auditors with much-needed guidance regarding the effect of IT on internal controls. The standard requires tests of controls in certain situations, regardless of the level of control risk2 set by the auditor. The evaluation of internal controls is not complete until the auditor obtains a sufficient understanding of the controls’ design and determines whether critical internal controls are present in the automated environment, in operation and working as intended. Public Company Accounting Oversight Board (PCAOB) Standard No. 23 upholds SAS 94 and discusses the IT control objectives to consider in assessing internal controls for US Securities and Exchange Commission registrants.
Source:
Source:
2005-05-16_release_2005-009.pdf (http://www.pcaobus.org/Rules/Docket_008/2005-05-16_Release_2005-009.pdf)
