Tyco is a conglomerate organization that had $36 billion inrevenue. In a court t
ID: 2433523 • Letter: T
Question
Tyco is a conglomerate organization that had $36 billion inrevenue. In a court trial, it was alleged that the CEO of theorganization used corporate funds: -For a private birthday party (over 1 million) -To lavishly furnish an apartment in New York City -To pay domestic help for taking care of the apartment -To make loans to key executives that were subsequentlyforgiven by the CFO 1. What audit procedures would have identified thesetransactions 2. Is is reasonable to expect an audit to uncover these typesof transactions in a #36 billion company 3. Should the auditor look for these types of transactions inevery audit? Is it reasonable for auditors to look for suchtransactions? 4. What controls should an organization like Tyco implement toensure that such transactions do not take place in thefuture? Tyco is a conglomerate organization that had $36 billion inrevenue. In a court trial, it was alleged that the CEO of theorganization used corporate funds: -For a private birthday party (over 1 million) -To lavishly furnish an apartment in New York City -To pay domestic help for taking care of the apartment -To make loans to key executives that were subsequentlyforgiven by the CFO 1. What audit procedures would have identified thesetransactions 2. Is is reasonable to expect an audit to uncover these typesof transactions in a #36 billion company 3. Should the auditor look for these types of transactions inevery audit? Is it reasonable for auditors to look for suchtransactions? 4. What controls should an organization like Tyco implement toensure that such transactions do not take place in thefuture?Explanation / Answer
Examining journal entries andother adjustments. Several instances offraudulent financial reporting involved the manipulation of thefinancial statements through unauthorized journal entries or otherso-called top-side adjustments. Many auditors already may reviewunusual or “nonstandard” journal entries. However, theED places more emphasis on the auditor’s understanding of theentity’s financial reporting process, including automated andmanual procedures used to prepare financial statements and relateddisclosures, and how misstatements may occur. This understanding,already required by SAS no. 94, TheEffect of Information Technology on the Auditor’sConsideration of Internal Controls in a Financial StatementAudit, provides a basis for determining the nature,timing and extent of testing of journal entries and otheradjustments for evidence of possible material misstatement due tofraud. This testing would be a matter of professional judgment andwould be based on the auditor’s assessment of the fraudrisks, whether effective controls have been implemented over one ormore aspects of the financial reporting process, the nature of thefinancial reporting process and the evidence that can be examined(for example, the extent of manual vs. electronic evidence) and thenature and complexity of the accounts.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.