Question

6. Suppose you are the auditor for F&C International, Inc. Consider the following scenarios independently:

a) First, consider that you are successfully fooled by the diversion strategies implemented by different managers and officers, and thus, you are unaware of the potential issues that are surfacing. Do you face a dilemma? Elaborate why or why not. (10 pts)

b) Now, suppose you become aware of the general issues. Namely, the irregularities surrounding "Warehouse Q" and the testimonies of the employees confessing to inventory manipulation. Moreover, you also observe key individuals departing from the company. Discuss the alternatives that you face, the related ethical and real implications, and, in your opinion, your preferred course of action. (20 pts)

c) Lastly, given the same facts as in b), now assume that F&C is your only audit client. How does this change your conclusion from the previous part? (10 pts)

Answer 1

(a) I would not face dilemma as i would follow below pointers even if I am fooled.

1. Firstly i should know what is the business about.
2. how the business works.
3. who are the key personal to perform key task.
4. cash & ledger vouching.
5. i should be made available with any data which i require for forming my opinion.
6. In the absence of the data i would give a disclaimer for the same.
7. i should go through all the documents pertaining to diversions made
8. i should maintain note of every fact that i have audited.
9. Being an independent auditor I must go by facts & not by the data or wordings presented by staff
10. I should investigate each & every fact which needs my attention & which is not convincing.

b) Following are the points that an I would follow as Auditor for scebario (B)

1. Firstly I would study how the business or organisation is running.
2. Who are the key personals (authorised) to perform key business activity.
3. Planning is very important for any audit to start hence i would plan the audit first after gaining knowledge of above things.
4. once i set the plan i would take a walk through of the organisations.
5. During walk through is should carry a note pad & a recorder where the testimonies for confessions of employees would be recorded.
6. Key points are to be noted which are required for carrying the audit sucessfully.
7. i should request for SOP.
8. Check if SOP's are in place.
9. Check if SOP are followed like a Rule.
10. if the same is not followed i should report the same in the Audit Report.
11. While doing above steps i would come accross with the irregularities in warehouse Q i would note the same to form a part of my audit report with the testimonies collected during walk through.
12. i should also conduct walk through with each & every person responsible for particular department.
13. I should note each & every reason for builds the reason for that personal to leave the organisation.
14. i should observe each & every conversations between the employees.
15. I should not fall prey for their good talks
16. I shoudl be able to find the reason for all why arising out of each answer.
17. i should check all the balances of bank & related transactions
18. i should check all the transactions pertaining to petty cash
19. i should check if any transactions or trades are done by cash if yes than find the reason behind that transaction
20. if the above things are not proper everything would form part of Audit Report with Negative opinion.

(C) Following are the points if i have got above as only audit client:

1. Since FFC is my onlu client i would be knowing its way of doing business & the type of business it becomes more easier to conduct the audit
2. we can do the audit on daily basis with 100% data cover
3. we can employ fulltime auditor their to vouch the volume of transactions & trades
4. Collect the data on daily basis
5. this continous ongoing audit will not let the client to manipulate any data or wordings or documents as we will have first hand data.
6. if there are any irregularities in warehouse Q that would be noted & identified in the first instance & chances of any irregularities would be low.
7. efficiency of emplyoess would be high as everyone in the organisation would feel the presence of auditor's eye on them.
8. despite of all these efforts if there are any irregularities than same need to be reported.
9. Being an independent auditor I must go by facts & not by the data or wordings presented by staff
10. I should investigate each & every fact which needs my attention & which is not convincing.