Ethics:

Ethics in the accounting profession is defined as guidelines and principles. It includes laws and standards of behavior.

Audit:

The audit is defined as a systematic examination of books of accounts of an individual or an organization. Auditing is done by the professional CPA; we call them auditors.

Auditor:

The auditor is the person hired by the owner for a systematic examination of books of accounts of the company. The auditor uses its professional knowledge and gathers evidence. It should be a question minded, plan, and being alert to the condition of the misstatement due to fraud and error.

Management:

There are three levels of management, top management, middle management, and lower management. Top management set objectives, make a plan, and take decisions of the organization.

GAAP:

GAAP is a generally accepted accounting principle. It is the set of accounting principles and standards. It was issued in 1973 for US public and private companies by the financial accounting standard board for issuing a public statement.

It is the set of accounting guidelines lines and rules used by the companies for financial reporting.

At the end of the accounting period when all the books of accounts are closed management prepared the financial statement and hand to the auditor. The owner hires an auditor for a systematic examination of books of accounts of the company. The auditors are independent from the management and use his professional knowledge and responsible for moral judgment in all his activities done in the course of action. The auditor works for as an individual or a company, he is potentially liable to act in the way to serve the public interest.

The auditing standard requires the auditor to a systematic examination of books of accounts. He is responsible for gathering enough, appropriate evidence to check the revenue, reserve. He should assess the risk of misstatement and financial reports prepared according to the applicable financial reporting framework

To finds out the internal risk and misstatement in the financial statement he should also,

1. Inspect relevant documentations

2. Observe the operation of a control

3. Make inquiries of an employee

4. Reperform the control

In this case, GM Dearlove is a CPA of D&T LLP and Deloitte is the auditor of A Communication Corporation. The company violated accounting and reported standards by offsetting assets and liabilities in an improper way, entered in the co-borrowed debt, not adequately disclose contingent liability.

The substantive test should be performed by auditors during auditing for gathering the information from the financial statement and assertion the financial report is valid, accurate, and complete and according to the applicable financial reporting framework.

They should follow the three types of substantive test to finds out the internal risk and misstatement in the financial statement:

1. The substantive test of the transaction is conducted to gather the information related to revenue and expense (items of the income statement).

2. Substantive test of balance (to check the accuracy of the account balance and amount of monetary transaction gather evidence from the balance sheet related to assets, liability, and equity).

3. Analytical procedures to compare last year's financial ratio with the current year.

Management breached its accountability by not properly recorded and reported financial statements. They violated their responsibility toward the stakeholder like employees and investors by altering their financial report, underlying performance.

The audit report is mandated by GAAS (generally accepted auditing standards) and should be written in a standard format. The auditor failed to deduct fraud and to not properly done his job. He should check the internal control of the company. If they deduct fraud than they should not sign off the materially incorrect report and ask the management to make a correction on a false report. The auditor should also identify the auditing standard (AU316) which considered the fraud and assessing inherent risk factors.