Overstock's 2008 Financial Audit

An implicit theme of this case that I want students to recognize is the contrast between the persistent and vigorous efforts of David Sokol to “get to the bottom” of the suspicious items he uncovered in JWP’s accounting records versus what Judge William Conner referred to as the “spinelessness” of JWP’s auditors. The JWP audits were similar to most problem audits in that the auditors encountered numerous red flags and questionable entries in the client’s accounting records but, for whatever reason, apparently failed to thoroughly investigate those items. On the other hand, Sokol refused to be deterred in his investigation of the troubling accounting issues that he discovered. The relationships that existed between members of JWP’s accounting staff and the Ernst & Young audit team apparently influenced the outcome of the JWP audits. Of course, the Sarbanes-Oxley Act of 2002

The Molex Corporation is an electronic connector manufacturing firm, which is based in Illinois. This company is facing a financial reporting problem in which the financial statements were overstated. Joe King ,the CEO of the company, was appointed in July of 2001, and was responsible for managing and inventory control, among other very important duties. Diane Bullock was hired in 2003, to replace the previous CFO. Both Bullock and King were being accused of what? by the external auditors, Deloitte & Touche, for not disclosing an 8 million pre-tax inventory valuation error.

It is because of Keystone’s poor management quality, overall condition, and questionable bank statements that the OCC required the bank to enter into a formal agreement that included retaining a nationally recognized independent accounting firm. When Grant Thornton was contracted in 1998 to carry out an external audit, Thornton knew that the bank had significant accounting problems and was aware that the federal regulatory authorities were skeptical of the bank. In 1999, the accounting firm gave a favorable impression of the bank’s income statements for 1997-1998 and several months later the OCC discovered that the bank committed fraud and was insolvent. This resulted in the closure of the bank.

The auditing firm Coopers & Lybrand was accused of failing to perform a proper GAAS audit. One strategy the auditors could have performed was to follow the trail of revenue vs expenses. The auditor should have notice large sums ($10 million) of revenue going into one particular expense (Suppliers/Inventory). Considering Phar-Mor filed that they lost money in fiscal year 1984 and 1985 and they never cleared

It is also correct that each Auditors of Sloan & Spencer Auditing Firm LLC are most experienced in the specified industry and have complete knowledge, familiarity with retail rules and regulations concerning aspect of accounting procedures. It is our firm duty to be versed in the CASS, and other payment settlement systems, and other auditing experience. The auditors of Sloan & Spencer Auditing Firm LLC will give their qualitative and technological sources to each assignment individually. Our firm Assurance service is performed by our professional CPAs, possessing the goal of improving Apollo Shoes financial information or the contest of the financial information so that management decision-making can make more informed and making better decisions.

The aim of this report is to develop an audit plan using the 2007/2008 annual reports of the WesFarmers. This report will provide an understanding of the underlying concepts of an overall audit strategy. This strategy will bring forward the direction and scope of the WesfFarmers audit plan. This report will address five major points these are as follows:

LCC has conducted an audit of Apollo Shoes, Inc. balance sheets, the retained earnings, cash flows, and other related statements of income for the year ended December 31, 2006/2007. Apollo Shoes Inc management is responsible for maintaining the effective internal controls that goes along with the financial statements and how well the accuracy is going to be. LLC has evaluated the effectiveness of the said controls and with everything to see the relevance in the timing, the substantive in quality, and the comprehensive in nature. The responsibility of our firm is to express an opinion that is supported by audit evidence in

As mentioned earlier, Grant Thornton mainly focused on Sports Direct’s internal operations such as accounting for Sports Direct’s acquisition activities and forward contracts for foreign currencies, the carrying value of inventories, disclosures to related parties, and revenue recognition (Sports Direct International Plc 2016, p.64). These were the primary audit risks identified by the auditors. But Grant Thornton failed to find out SD’s fraudulent practices regarding its undisclosed payments to Barlin Delivery Ltd. However, the auditor provided detailed description about the risky areas in SD’s accounting practices and made proper connections with all the relevant and accepted accounting standards. In addition to that, they made declarations about SD’s past performance in those risky areas and whether they have improved in the recent years or not. And finally, Grant Thornton also made attempts to find out if SD had taken any steps to deal with these risky accounting practices, and they also assessed the

The goals of the Sarbanes-Oxley Act are expansive, including the improvement of the quality of audits in an attempt to eliminate fraud in order to protect the public’s interest, as well as for the protection of the investors (Donaldson, 2003). Prior to the implementation of SOX auditors were self-regulated with consumers reliant on their honesty and integrity. However, the auditing profession failed at self-regulation, thus necessitating the implementation of a security measure that would protect the investors and the

We have completed our risk assessment as requested by management. The following report will take you through our completed risk matrix, narratives about the risks and controls, and provide a summary of our findings. The areas covered

The chief executive of the company was closely working with the vendors whose confirmations were vital in the auditing work and hence they could have submitted false confirmations. The auditing firm established a national risk management program for its clients and so national reviews were done to identify the high risk items in the financial statement. The vendor allowances were particularly high but they were not documented. As such, the auditors were supposed to demand for the documentations and compare them with the real figures. It is however noted that most of the documentations received were non-standard and this could have led to a different audit report given that vendor allowances were earlier identified as a high risk area. Inventory management was found to be poor especially in the allowances for inventory reserves. The audit firm was therefore obliged to carry out a thorough evaluation of the inventory reserves and determine whether it was reasonable. The valuation was also supposed to include all classes of inventory but for the case of the company, the evaluation excluded instances where no sales had been made. Hence, this evaluation could not accurately represent the position of the inventory reserve in the company. (Waters,2003)

When engaged in auditing a public firm, such as Apollo Shoe Inc., an auditor must determine when to trust in the company’s internal controls and when to ascertain auxiliary testing methods are obligatory to analyze control risks. The sales and collection cycle is rather a substantial fraction of the audit because this unique segment employs a multitude of documentation and records ranging anywhere from customer and sales orders, shipping documents, credit memos, and general journal entries; therefore, a working

Internal auditing is an independent objective assurance and consulting acitivity designed to add value and improve an organizations operations.

For these reasons, corporate financial accounts do not provide accurate or sufficient information to corporate managers, investors, or regulators. This leads us to recommend that the SEC allow each stock exchange to set the accounting standards for all firms listed on that exchange and to promote the development of industry-specific non-financial accounts to complement the financial accounts (After Enron 53). The most important lesson of the Enron collapse is that every link in the audit chain including: the audit committee and the board, the independent public auditor, the bankers and lawyers that aided and abetted the misrepresentation of Enron’s financial condition, the credit-rating agencies, and the Securities and Exchange Commission failed to deter, detect, and correct the conditions that led to that collapse. Although not a part of the formal audit chain, most of the market specialists in Enron stock and the business press were also late in recognizing Enron’s financial weakness (Corporate Aftershocks 12).

This article initiates with the introduction on what is audit planning. It basically addresses the audit plan strategy of K & S Corporation limited’s Financial Statements. Being an external auditor of the company, key factors to be considered in auditing the financials of the subject company have been discussed in the article. The most significant accounts at risk being materially misstated have been critically examined citing the possible risks associated with such accounts. Last but not the least, the article concludes with recommendations with respect to audit assessment plan of the company. Hence, this article seeks to act as a ready reckoner guide for an audit manager in audit planning of K & S Corporation Limited.