You have just finished your yearly audit of a publicly traded corporation. Describe how you would handle each of the following scenarios:
Scenario 1:
Describe why there is a big emphasis placed on auditing cash and cash equivalents. Address the following:
- Why is this area more susceptible to fraud?
- How do the controls of traditional financial instruments differ from new types of marketable securities investments?
- What are some new risks that you should be concerned with?
- How is collateral figured out in these types of audits?
Scenario 2:
While doing an audit, you discover inconsistencies in the company's expenses. Address the following:
- Why might a company choose to overstate or understate its expenses?
- How might this be accomplished?
- Describe how professional skepticism plays into this type of audit.
Scenario 3:
Why is auditing inventory more complex than auditing other asset accounts? Address the following:
- What controls are companies expected to have from the time goods are purchased to the time invoices are payed in accounts payable?
- What are the various tests that can be applied, and how do the internal controls play into it?
Scenario 4:
When an auditor is trying to determine if the financial statements are reported fairly, how might a summary of potential adjustments help? Address the following:
- What information would they give to the auditor?
- Would an analysis of the internal controls report be beneficial at this point?