We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

See Pricing

What's Your Topic?

Hire a Professional Writer Now

The input space is limited by 250 symbols

What's Your Deadline?

Choose 3 Hours or More.
2/4 steps

How Many Pages?

3/4 steps

Sign Up and See Pricing

"You must agree to out terms of services and privacy policy"
Get Offer

Auditors Duties and Impact in Business

Hire a Professional Writer Now

The input space is limited by 250 symbols

Deadline:2 days left
"You must agree to out terms of services and privacy policy"
Write my paper

Questions: 1. Should auditors evaluate the soundness of a client’s business model? Defend your answer. The auditor’s responsibility is not to evaluate a client’s business model but to have a sufficient understanding of the entity. An auditor needs a sound and comprehensive understanding of the client’s business and industry to develop valid expectations about financial-statement assertions. 2. Identify and briefly describe the specific fraud risk factors present during the 2000 NextCard audit. How should these factors have affected the planning and execution of the engagement?

The three examples of risk factors (a) pressure, (b) opportunities, and (c) rationalizations.

Don't use plagiarized sources. Get Your Custom Essay on
Auditors Duties and Impact in Business
Just from $13,9/Page
Get custom paper

Nextcard‘s pressure was in rapid growth by extending credit of more than $1 billion to customers without profits but rather large losses. The need to raise additional debt or equity capital when the Internet bubble burst and their stock prices went downward continued to cost rather than bring in revenue. Jeremy Lent and his executives dominated the organization and created ineffective monitoring and concealed the extent of the entities financial problems.

NextCard’s executives understated credit losses and refused to provide sufficient allowances for expected bad debts. The third risk factor relates to rationalizations by Lent and his executives to increase Nextcard’s stock price rose from a selling price of $20 per share to more than $40 thus making them instant multimillionaires. The executives also continued to promise and predict that they would turn the corner to eventually report a profit. Instead of making a profit NextCard and the executives concealed the extent of the company’s financial situation by understating the allowance for credit losses.

These three factors should have affected the planning and execution of the engagement had the audit team understood the business they were auditing. If the audit team had researched previous audit records, contacted the Comptroller of the Currency (OCC), the integrity of Lent and his executives would have been in question. With research, preparation and knowledge of the business to be audited the audit plan would have required more substantial procedures. 3. What are the primary objectives an audit team hopes to accomplish by preparing a proper set of audit workpapers?

The objectives an audit team hopes to accomplish by preparing a proper set of audit workpapers is to facilitate the planning, performance, supervision of the engagement, and provide evidence supporting significant conclusions by the auditor in accordance with the PCAOB. A record of the evidence, samples tested and the conclusions are presented to supervisors and partners for review 4. Identify the generally accepted auditing standard violated by the E&Y auditors in this case. Briefly explain how each standard was violated. E&Y auditors violated their responsibility to the public and to their profession.

The auditing standards that were violated were AU 15 responsibility of the auditor to obtain sufficient evidence to provide a reasonable basis for his opinion, AU section 339 preparation and maintenance of working papers, AU 339. 01 Principle record of work contains information and conclusions the auditors have reached concerning significant matters in the working papers, AU 339. 08 the auditor is required to “adopt reasonable procedures for safe custody of his working papers and retain them for a period, AU 15 was violated when Trauger requested revisions to the workpapers. AU 339, AU 339. 1 and AU 339. 08 were violated with the revision of the workpapers and altering the archived electronic workpapers, changing the timestamps of the revised files without leaving any evidence. AICPA Code of Professional Conduct, were also a violation of their professional ethics and integrity as public accountants. 5. When he became a member of the NextCard audit engagement team, Oliver Flanagan hoped that Robert Trauger would serve as his mentor. What responsibility, if any, do senior audit personnel have to serve as mentors for their subordinates? Senior auditors are an example to follow.

Their behavior and culture should positively influence their people. Senior auditors must constantly exercise proper judgment and behavior and inspire subordinates to do the same. Trauger had a position of authority and respect to make ethical and professional decisions for the firm and to guide those he is supervising. He failed when he requested to revise the prior year audit workpapers. 6. Assume the role of Oliver Flanagan in this case. What would you have done when Robert Trauger asked you to help him alter the 2000 NextCard audit workpapers? In answering this question, identify the alternative courses of action available to you.

Also identify the individuals who may be affected by your decision and briefly describe how they may be affected. If I was Oliver Flanagan I would have told Trauger that there was no way that I would alter 2000 NextCard audit work papers. I would explain to Trauger that even though I respect him a lot and I wanted him to be my mentor, I would not be willing to break the law or go to jail by changing the work papers. If Trauger still insisted on continuing I would go to Michael Mullen and talk to him about the unethical behavior and ask that we go together and report this to another partner of the firm.

The entire firm would be affected since this would possibly create a negative reputation of the firm if it was revealed to the public and possible further investigation and a lot legal fees along with severe penalties and potential suspension. Oliver himself was affected. Oliver Flanagan gave up everything for nothing. Oliver wasted all of the time he went to school and most importantly lost respect of family and employees at the firm. He lost respect and trust of the public. Trauger was also affected by Oliver Flanagan’s decision to cooperate.

Cite this Auditors Duties and Impact in Business

Auditors Duties and Impact in Business. (2016, Oct 30). Retrieved from https://graduateway.com/nextcard-case/

Show less
  • Use multiple resourses when assembling your essay
  • Get help form professional writers when not sure you can do it yourself
  • Use Plagiarism Checker to double check your essay
  • Do not copy and paste free to download essays
Get plagiarism free essay

Search for essay samples now

Haven't found the Essay You Want?

Get my paper now

For Only $13.90/page