Question

[1] Describe management’s responsibilities in implementing effective internal control over financial reporting in a public company.What responsibilities did Koss Corporation’s management have to prevent or detect the embezzlement and accounting fraud?

[2] In what ways did Koss management fail in its responsibilities relating to internal control over financial reporting? Note: Please be brief but be specific—consider organizing your response in accordance with the components (and principles) of COSO’s 2013 Internal Control: Integrated Framework (which can be found at www.coso.org).

[3] As Koss Corporation’s financial statement auditor, what responsibilities did Grant Thornton have to detect the embezzlement and accounting fraud? List and briefly describe at least three red flags that could have alerted the auditor to the fraud.What audit procedures might the auditor have used to address those red flags in order to discover the accounting fraud and the embezzlement?

[4] Based on the information presented in the case, do you believe Grant Thornton failed in its responsibilities to provide reasonable assurance that Koss Corporation’s financial statements were presented fairly in all materials respects? Justify your answer using specific arguments and examples. Include in your answer an assessment as to whether you believe an $8.5 million embezzlement in a single year at Koss would typically be considered material by most auditors, and why.

[5] Assume the role of an expert witness who has been asked by a court of law to assess whether and to what extent Koss management and Grant Thornton were responsible for failing to prevent or detect the embezzlement and accounting fraud.Write a two-page professional opinion summarizing what you believe went wrong, and whether and how Koss management and Grant Thornton failed in their responsibilities. Cite specific examples to support your conclusion. Conclude your report with an assessment of whether Koss management and Grant Thornton should be held at least partly responsible for failing to prevent or detect the fraud.

[6] List and briefly justify three or four specific steps that you believe would be most important for Koss Corporation to move forward after discovery of the fraud.

Answer 1

Answer 1

Koss Corporation’s management have to prevent or detect the embezzlement and accounting fraud

-koss corporation should follow proper rules and regulations(laws) and they must have effective and efficient operations.

-accuracy should be there in financial reporting.

-the most important thing which matters alot is the MANAGEMENT, there should b proper motivation towards their employees so they can do their work efficiently and effectively.

-most important thing for the management is they must have proper framework for internal controls. they should check risk assesment in every step so they can avoid mistakes and frauds.

Answer 2

Koss management fail in its responsibilities relating to internal control over financial reporting

-koss failed to assign the duties which is the major problem.

-Management was not so good. They were not checking or inspecting the accounts.In an organization controling and inspecting is very important for efficient work and koss was failed to do so.

-koss management has failed to maintains monthly reports like bank reconciliations.

Answer 3

-The auditor duty is to auditing standards and express their opinion based on the evidence and audit procedure so definately they did the mistake.

-the problem was not discharging their duties properly by senior management. And they were refusing to accept the blame for negligence and claimed the preparation and internal control are the responsibility of management.

-Audits are not designed to uncover frauds. If companies need to engage someone to detect fraud then they need to hire forensic accountants so they can detecting and preventing frauds.

-standadrds were not followed by the management which is important to follow.

Answer 4

-as Grant Thornton was the external auditor, yes definately he failed in its responsibilities because as his duty was to audit and inspect all the standards and due to his mistakes and koss management, the fraud happened. It was a matter of ethical conduct and independence is equally of critical importance in ensuring the quality of our work.

Answer 5

-accounting department was small due to size of a company.

-The audit committee should have been more critical in examining the role of the external auditors and their performance as well as being robust in questioning the results of the company, along with the control environment. The committee should be more vigilant on fraud prone area of business.

-company did not have any form of internal audit. they could have contracted for an outsourced internal audit function.

-Management was not so good. risk management policy and procedures to detect and prevent such kind of issues.

Answer 6

-must change several procedures in the finance department.

-they must change the accountants so this would not happen again in future.

-must hire new CEO and CFO.

-should make proper audit committe..