Question

From the "Sino-Forest Fraud" and identify and describe in detail two auditing standards that Ernst and Young, LLP auditors failed to apply. Why do you think the auditors didn't apply these standards

Answer 1

SINO FOREST

EY’s audit report recognized in audit plan that there was high inherent risk of misstatement regarding Sino forest’s assets. The main procedures involved physical observation of sites, gathering evidences and obtaining legal opinions.

Sino Forest’s main assets were scattered through china. EY was very limited site visit. So main issues are:

1. INTERNAL CONTROLS: In the Financial Statements in Management Disclosure as part of its “Disclosure Control procedures and internal control over financial reporting. The Success of the Company’s vision depends on senior management. Such senior management was responsible for maintain relations with customers, negotiation. Now here concentration of authority, lack of segregation of duties, create risk in measurement and completeness of transactions. auditors do not see how the internal control and applying appropriate standards.

2. Fraud was not detected correctly, as proper measurement was not taken in financial statements overstating revenue by creating falsely sale. Auditors do not take sufficient appropriate audit evidence.

3. There was falsely purchase contracts but auditors does not identify that.