Quiz 5: Ethical Responsibilities of Independent Auditors

Business

The Accountants who faced ethical dilemmas are: • RS, the controller of C, He was forced to sign an illegal affidavit for the transaction of $203,000 made by U Airlines to C. • HS, audit partner supervising the audit of C by TR, she refused to accept the $203,000 as not refundable and commission revenue. • RS, KMG main Hurdman audit partner, he refused to accept the accounting treatment of $203,000 made by U Airlines to C. The parties affected by these dilemmas are shareholders and creditors of C system Inc. The responsibilities of these accountants were as follows: • The main responsibility of the accountant is to guide the executives of the Company in right path. • Auditors are responsible to maintain the financial data of the company. • Auditors are responsible to act ethically while conducting audit and submitting reports. Yes, all the three accountants fulfilled their responsibilities as RS did not sign the affidavit and lost the job. HS and RS refused to accept the accounting treatment and they mentioned the issue in the form 8-K statement.

The auditor should perform analytical procedure in the financial statement. It involves: • The auditor should verify each transaction of the company and their documents. • The auditor should get written confirmation from the executives of the company for the financial statement. • The auditor should enquiry the management regarding any change in the internal controls. • The auditor should observe where the statements are prepared in accordance to GAAP. Yes. Auditors of TR had taken appropriate steps to corroborate the entry. L and WR told auditor that the amount $203,000 was received as commission revenue from U airlines. The auditor did not accept the explanation of L. She asked the confirmation from U airlines. She received the confirmation that the dispute amount is refundable and there is no secret agreement. No. The subordinates hasn't informed in the second quarter. If they would have informed to HS in the second quarter, she could have asked the confirmation from U airlines in the second quarter itself, not in next quarter to corroborate the entry. Then she may not allow recording the amount as commission revenue in the form 10-Q statement.

L had submitted the entry of $203,000 in the form 10-Q statement. He informed to HS that the entry of commission revenue is legal. The evidences for improper record of the entry are as follows: 1. The audit evidence collected by HS regarding the disputed amount is the confirmation statement from the united airlines. The confirmation statement states that the amount was refundable through 1990 if certain stipulation of the agreement between the two parties were not fulfilled. 2. R did not allow HS to contact U airlines to the confirmation about the secret agreement. The auditors consider the characteristics of audit evidence by its reliability. The evidence should be in written form as receipts, agreements and documents. If there is no written evidence, they will get the oral evidence from the both the parities. In case there is no such evidence then auditors should not give unqualified report. The audit evidence collected by HS regarding the disputed amount is oral evidence from the U airlines. The confirmation statement states that the amount was refundable through 1990 if certain stipulation of the agreement between the two parties were not fulfilled. However, L stated that the amount was not refundable. So, the oral evidence of U Airlines is mismatched with the statement of R. Therefore, the entry is improper.