How do Auditors detect fraudulent activity related to warranty reserve

Solutions

Expert Solution

The auditor's should do the following activity to detect fraudulent activity related to warranty reserve:

1) Evaluate the degree of estimation uncertainty associated with warranty reserve.Estimation uncertainty is the susceptibility of warranty reserve to an inherent lack of precision in its measurement.

2) Assess management's written policies and practices regarding the development and use of warranty reserve.

3) Determine that the warranty reserve estimates are reasonable, which means he should focus on assumptions that are significant to the estimation of reserve, sensitive to variations, deviations from historical patterns and subjective and susceptible to misstaement or management bias.

4) Auditor should obtain an understanding ofhow management developed its estimate regarding warranty reserve.

5) Then he should review and test the procedures used by management to develop the estimate of warranty.

6) Develop an independent estimate of the item for comparative purposes.

7) Review subsequent events and transactions that corroborate the value of the estimate of warranty reserve.

ekkarill92 answered 11 months ago

Next > < Previous

Related Solutions

Describe the various fraud detection methods used by auditors and forensic accountants to uncover fraudulent activity.

SUBJECT: Preventing and Detecting Fraudulent resumes. Reflect on best practices to prevent and detect fraudulent resumes....

SUBJECT: Preventing and Detecting Fraudulent resumes. Reflect on best practices to prevent and detect fraudulent resumes. Include thoughts on subject.

In this assignment you are developing a fraud detection system to detect fraudulent activities based on...

In this assignment you are developing a fraud detection system to detect fraudulent activities based on this Decision Three. Your program receives a comma separated transaction log with the below format as its input: [amount],[# of transactions in last day],[area code],[transaction time] Your program should use string operations to decompose the transaction log and store its elements in variables of appropriate types. Then, based on the values of those attributes and the decision three, it attaches either a ",fraud" or...

In your opinion, how can internal auditors best detect fraud in their organization? Provide explanations to...

In your opinion, how can internal auditors best detect fraud in their organization? Provide explanations to support your answer.

Differentiate between the auditors' responsibilities to detect errors, fraud, and illegal acts. How would you assess...

Differentiate between the auditors' responsibilities to detect errors, fraud, and illegal acts. How would you assess the ethics of a company that has experienced each event with respect to motivation and the integrity of those who go along with such events?

How do you detect billing scheme fraud

discuss exhaustively controls framework that can prevent or detect fraudulent behaviour in order to enhance effective...

discuss exhaustively controls framework that can prevent or detect fraudulent behaviour in order to enhance effective performance in a business organizations in Nigeria

The IRS currently uses Benford's Law to detect fraudulent tax data. Suppose you work for the...

The IRS currently uses Benford's Law to detect fraudulent tax data. Suppose you work for the IRS and are investigating an individual suspected of embezzling. The first digit of 162 checks to a supposed company are as follows: Digit 1 2 3 4 5 6 7 8 9 Observed Frequency 46 32 20 21 13 12 6 2 10 What is the P-Value? Report answer to 4 decimal places P-Value = Write a statement to the law enforcement officials that...

why it is important for readers of financial statements expect auditors to detect fraud in financial...

why it is important for readers of financial statements expect auditors to detect fraud in financial statement of company they audit? I need to talk about pros of the subject 5 mins in front of class. Please help to scope it. Thank you

"Fraud Risk" Create a scenario where the external auditors detect that there is fraud. Discuss the...

"Fraud Risk" Create a scenario where the external auditors detect that there is fraud. Discuss the auditors’ responsibilities for assessing fraud risk. What are the procedures used to detect material misstatements due to fraud? Discuss recommendations to management for reducing fraud.

Subjects