Question

You are performing an audit of a small Internet start-up company that recently went public. During the audit, you frequently converse with the employees, with whom you have a comfortable relationship. In on conversation, an employee mentions the strange behavior of a co-worker. Apparently, this suspect employee comes to work very early and stays late. He is stressed at work and rather irritable. Although many of the company's founders are enjoying the economic fruits of the initial public offering (IPO), this person did not own any stock in the company at the time of the IPO and thus did not earn much money when the company went public. Nevertheless, this person drives a new Porsche Boxter. Is there sufficient evidence to determine whether this employee appears to be committing fraud?

Answer 1

• Audit evidence is all the information, whether obtained from audit procedures or other sources that is used by the auditor in arriving at the conclusions on which the auditor's opinion is based. Audit evidence consists of both information that supports and corroborates management's assertions regarding the financial statements or internal control over financial reporting and information that contradicts such assertions.

• Sufficiency is the measure of the quantity & quality of audit evidence.

• Appropriateness is the measure of the quality of audit evidence, i.e., its relevance and reliability. To be appropriate, audit evidence must be both relevant and reliable in providing support for the conclusions on which the auditor's opinion is based.

• The relevance of audit evidence refers to its relationship to the assertion or to the objective of the control being tested.

• The reliability of evidence depends on the nature and source of the evidence and the circumstances under which it is obtained.

• In the present case Small internet Startup Company went public. many of the company's founders are enjoying the economic fruits of the initial public offering (IPO) when the company went public.

• In a given situation auditor while performing audit had conversations with employees of company. In a conversation they mention the strange behavior of co-worker. This person did not own any shares in the company at the time of IPO. This suspect employee comes to work very early and stays late.     This person drives a new Porsche Boxter.

• Conclusion:

It is not sufficient evidence that Suspect employee committing any kind of fraud. It Is not relevant that person is drives Porsche Boxter as well as other employee mentioning strange behavior of suspect employee. This person not holding any shares while company went public through IPO.

So there is no sufficient evidence to conclude that this employee appears to be committing fraud