A \"Big 4\" accounting firm was auditing a limited real estate partnership that

Question

A "Big 4" accounting firm was auditing a limited real estate partnership that had three general partners (all brothers) and 2000 limited partners. The limited partnership owned real property that was leased by Arby's, Sizzler, and other restaurants in various states, all under "triple net leases," meaning that the lessee is responsible for property taxes, utilities, and other such operating costs. The auditors decided to look for liens on the property to make sure property taxes were being paid and were current. In doing so, they found some liens for bank loans on the properties in a state where the partnership had no properties. Is this a fraud symptom or red flag? What should the auditing firm do about this revelation?

Explanation / Answer

Bank Lien is a type of charge where the banker gets automatic claim over borrower's property in normal course of business after giving legal notice.

In the given situation,The lease agreement is a triple net lease where the lessee is responsible for net insurance,net taxes on the related property and net common area maintainance but not for loan repayment which lies with the lessor.In this case it can be termed as there are some symptoms of fraud involved in the partnership firm.

Here,since bank Lien is considered as valid point to report fraud and hence, the Auditor from Big 4 firm must give adverse opinion as their clear symptoms of fraud in that partnership firm.

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