Question

What areas of the Audit Opinion Formulation Process and or Appropriateness of Audit Evidence are potential areas of weakness in the corporations shown in the film "Inside Job". You may need to research companies named in Inside job by using sec.gov and other research websites available.

Answer 1

The huge corruption existed in US banking sector was brilliantly depicted in the film Inside Job. In –fact the film explained the existence of huge corruption in US banking industry which was one of the primary reasons for the economic crisis that subsequently followed in the year 2008.

The film depicted the loopholes in recording the receivables and loan transactions. The process used by the auditors to verify the good debt and bad debt in banking industry is one of the major areas of weaknesses in the audit of banking industry. In-fact also a fraud prone area as the bank executives have found to be manipulated the audit procedures by using unfair means to show the bad loans as good loans. As a result of this the financial positions of the banking organizations reflected in the financial statements of these organization were not the correct positions of these organizations as many organizations despite having huge proportion of bad loans did not make any provisions in the books of accounts. As a result of these the financial performance of these organizations were also not correctly reflected in the profit and loss accounts of these organizations.

Apart from that the requirement of maintaining of minimum statutory balances by the banking organizations was also another area of weaknesses in the audit of banking industry. The auditors were also inefficient as the audit evidence collected by the auditors were not sufficient to express correct opinions on the financial statements of the audit of the banking organizations.