The memo must have issue, rule, analysis and conclusion Memo question Please wri

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The memo must have issue, rule, analysis and conclusion Memo question
Please write a memorandum answering the following questions Vince and Will went back to the office to discuss how to proceed. How should an auditor proceed in this situation? Give specific citations to the applicable rules
Regarding the trading styles, Inc. : an analysis of the going concern assessment case:
Using the information provided in the case, as well as analytical procedures, identify and discuss the issues that may raise substantial doubts about the entity's ability to continue as a going concern for the next twelve months If You Need Love, Get a Puppy: A Case Study on Professional Skepticism and AuditorIndependence Robert L. Braun and H. Lynn Stallworth THE CASE fe is good, thought Will Stallard as he got into his truck that October morning. He could have been thinking of any one of a number of things-his wife of seven years, his beautiful baby girl, or his job as a staff auditor at Dykstra, Banister, and Huston (DB&H;), a CPA firm with offices in Montgomery and Mobile, Alabama. Or, maybe it was the slight ch in the air and the opening of bow-hunting season in nine days. Whatever it was, his feeling of satisfaction inspired him to reflect on the path that got him to this point As a nontraditional student at a local university, he struggled to balance competing demands on his time. He maintained his business as a plumber while carrying nine hours of classes per semester. He could have made a fine living as a plumber, as his father did before him. But, as he half-joked to his auditing professor. "I want a job where I take a shower before I go to work." It had taken seven long years, a lot of patience from his wife, and his dad coming to the rescue on more than a couple of his plumbing jobs, but he had reached his goal. It had taken several unsuccessful attempts, but he had finally passed the CPA exam. After spending a year with a large regional firm, he had switched jobs four months ago to decrease his travel and overtime as the baby's due date approached. He seemed to be on his way. Life was good, or was it just the lack of sleep dulling his senses? This morning, his commute would be a short one. He was auditing the Town of Rose- dale, a bedroom community northeast of the city and just five miles from the town where

Explanation / Answer

First Case Solution :

Issue : How should an auditor proceed in a situation where the accounted cash receipts which are even reflected in computerised records are not traced in bank ?

Analysis :

1. An auditor should be alert while going through every transaction in order to save his time and also work & maintain professional skepticism throughout audit.

2. In the audit program, the first step was to select 20 traffic tickets marked as paid per receipt book. Then to check sheriff's computerized records for paid, to bank deposit slips to bank statements. Will had taken first 20 tickets in which all others were by bank except for 2 tickets which were in cash. He saw the receipt vouchers made & also, that transaction was reflected in sheriff's record. But the problem was this cash received was not deposited or not reflecting in bank. Jess gave an explanation that the day might have closed very late and thought to deposit cash next day but the deposit amount had fallen between two cabinets in the vault. And handed over that cash to Will. Will after counting that currency & after observing carefully found that the currency was make of year 2006, while this transaction was done in the year 2005. He got to know something was wrong hence, he approached Vince and they discussed this, further, they found out few more transactions with same pattern.

2. They should proceed further in the case :

They need to increase the sample size firstly in order that more of cash transactions are analysed. They should prepare or get prepared a cash reconciliation statement wherein a proper coming in & going out of cash is recorded with proper evidence like ticket number etc, given as a reference from where the cash came in & went out. A surprise verification of cash needs to be planned here. The cash receipt system needs to be improved lets say a person when he receives cash he should sign voucher and a other person should be hired to deposit that particular amount received in cash in the bank and present a receipt therein which should be attached with the voucher. The cashier should be restricted to access account receivables & bank statements. Even now a doubt arises in mind where Will had found out vouchers in which there were signatures missing. He should further see that the vouchers where signs are missing are cash and if yes trace them further. After analysing a cash reconcilation, all doubts will be cleared. But more people will be needed for such work.Revenue being an important part of the company needs to be analysed very carefully. The transactions especially at the end of the year should be checked. Materiality of the cash transactions also need to be checked. Sometimes, it happens that small amounts get accumulated and become material.

Conclusion : Will has found out a major fraud in the firm. He should analyse and draw conclusion and place his opinion in an independent manner i.e. Without being biased. If afterwards he finds that a sufficient appropriate audit evidence cannot be found and he is not in a position to give an opinion, he sould disclaim his audit report. He also has an option of withdrawing from engagement if conditions warrant further. Cash being an important aspect needs to be handled carefully & fraud which is found out should be reported to the appropriate higher authority or lastly if no one is higher, to the TCWG.

Second Case Solution :

Issues that may raise substantial doubts about entity's ability to continue as a going concern :

1.Management intends to stop some operations.

2. Withdrawals of financial support by creditors.

3. The unfavourable financial ratios.

4. Many cash transactions which earlier used to be on credit terms.

5. A competitor has emerged. And also, the key management of the company has left.

6. Huge fines and penalties are about to be imposed on companies due to new laws emerging which the company shall not be in a position to pay.

7. Negative cash.

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