Question

3) The Audit firm Dewy, Cheatham, & Howe was offered such a high fee to do an attest
audit of Crook Puppy Investments (CPI) Ltd that they accepted. However, a week into the
audit, they found and documented in the audit working papers many serious
irregularities—including weak to non-existent internal controls, accounting clerks who are
living well beyond their means, large sums of investor (client) monies that are missing
and unaccounted for, evidence that CPI is engaging in money laundering for Bikie Gangs.  

Required:
a) Discuss strategy (including risks) on how Dewy, Cheatham, & Howe can manage, get
out of, or complete this audit.
b) Given what has been found, discuss what opinion Dewy, Cheatham, & Howe should
give on the GPFR of CPI – explain/justify your choice

Answer 1

3)

a) The strategy alongwith risks, the Dewy, Cheatham & Howe should adopt to complete the audit are:

1. They go for the 100% checking of the Cash account alongwith the cash receipt and payment vouchers.

2. The Accounts Receivables lists should be checked alongwith all invoices raised and payments received. The confirmations from the Debtors should be asked for.

3. The Accounts payables list should be verified alongwith the invoices received and payments made to creditors. The confirmations from the Creditors should be asked.

4. Bank Statement details are to be analyzed and verified with the cash received and payments made.

After completing the above checking, the Dewy, Cheatham & Howe could able to asure the proper audit of cash movements and risks involved in CPI audit.

b) The findings of the audit according to the informed irregularities, Dewy, Cheatham & Howe should report under GPFR of CPI are :

“ The analysis and verification of the Cash account of the shows that there is no internal controls attention is provided. The gap in the Cash account amounts to many million dollar. The cash maintained by the accounts clerk with him was around 40% of all the cash movements during the year. The creditors were not being paid off and having a lot of pending creditors account. A huge amount of unaccounted cash has been taken out of bank and deposited. The details of the same is still pending. The report provided and signed by us are subject to above clarifications, explanation and confirmations. “