CPA Engagement Letter

In this case, there are several conspirators who is involved in the fraud receiving punishment from either SEC or federal government. Robert Levin, the AMRE executive and major stockholder, and Dennie D.Brown, the company’s chief accounting officer, were subject to the punishment in the form of a huge amount of fine by the SEC and the federal government. This punishment came from reasons. After AMRE going public, the company have the obligation to publish its financial reports but its performance did not meet expectation. The investigation by SEC shows that Robert took the first step of this scam, fearing the sharp drop of AMRE’s stock price because of the poor performance of company. He abetted Brown, to practice three main schemes to present a false appearance of profitable and pleasant financial reports. Firstly, they instructed Walter W.Richardson, the company’s vice president of data processing, to enter fictitious unset leads in the lead bank and they originally deferred the advertising cost mutiplying “cost per lead” and “unset leads” amount, so that they deferred a portion of its advertising costs in an asset account. The capitalizing of advertising expenses allowed them to inflate the net income for the first quarter of fiscal 1988. Secondly, at the end of the third and fourth quarters of fiscal 1988, they added fictitious inventory to AMRE’s ending inventory records, and prepared bogus inventory count sheets for the auditors. Thirdly, they overstated the percentage

The risk of management fraud needs to be considered when determining tolerable misstatement because the risk of fraud directly affects the risk of misstatement. Smith & Jones has a percentage that tolerable misstatement thresholds should not exceed, which is adjusted tolerable misstatement guidelines, with low risk of management fraud misstatements should balance each other out. However, when high risk of management fraud is likely misstatements will likely skew the company’s numbers to overstate the company’s income (ex. overstating income and understating expenses). If numbers are fraudulently misstated with the goal of increasing income, the chance of highly material misstatements drastically increases.

In today’s world, the role of IT has turned accounting estimated critical in financial reporting and disclosure. Houghton and Fogarty have said that non-accurate or incorrect estimates have often caused to misstatements in audit report (Gray & Manson, 2007).

When an error of overstatement like this one happens, the financial statements have to be restated in order(ed) to bring net income to the correct amount. The Cost of goods sold should’ve been increased by $8 million and the same

The engagement letter states that the plaintiff “will prepare or assist in preparing the defendant financial statements, the statements will be the defendants' representations and must accept responsibility for the fairness of such representations.”

Fraudulent financial reporting is one form of corporate corruption and may involve the manipulation of the documents used to record accounting transactions, the misrepresentation of accounting events or transactions, or the intentional misapplication of Generally Accepted Accounting Principles (GAAP) (Crumbley, Heitger, and Smith, 2013). Examples of fraudulent schemes befitting of this category abound and usually involve financial statement items that have been misclassified, omitted, overstated, undervalued, or prematurely recognized. One case involving CEO Bill Smith of Moonstay

) There was a lack of adequate cut-off procedures to ensure the timely recording of certain period-end accruals. This resulted in an audit adjustment of $3,578,000. The benchmark for overall materiality is $3,508,000, I would consider the audit adjustment of $3,578,000 a material misstatement. Control environment, principle 2 the board of directors and management exercise oversight of development and performance of internal controls. Due to the severity and material weakness of lack of adequate cutoff procedures to ensure timely recording of period end accruals. Management and the board of directors should evaluate performance of internal control activities including adherence to standards of conduct and expected levels of competence. In

The act requires management to disclose all material information or changes within their accounting processes. By requiring senior management to review the reports they are held accountable for the financial accounting of the firm, and procedures to prevent employees and other members within an organization from committing fraud or theft and management is legally responsible if material misstatements have been made. By making management accountable then they are less likely to commit fraud if faced with jail time. Management and stockholders frequently have different goals. Management often wishes to expand and use the company’s assets in different ways than a stockholder. Management’s accountability of the financial reports often helps encourage management to use company assets in appropriate ways. Disclosures were also a reduction in risk of fraud because all material information must be disclosed. By requiring this disclosure if a company’s net income increased this year due to a

Excello accounting standards in the case study shows that the CFO wanted to make a decision based on an operating decision going against accounting standards. GAAP principles must be followed by Excello when preparing financial statements. When the company releases the financial statements, it must be in compliance with GAAP. With that in mind, the accounting department must also comply with GAAP principles when the $1.2 million sale is posted. Excello must follow revenue recognition rules when the sale is recognized by the company. Revenues resulting from selling inventory must be recognized at the date of the sale, often viewed under date of delivery. If the company used accrual basis of accounting, the revenues are recognized when they are earned, and expenses are matched with the revenues generated by the sale. So for Excello, the sale cannot be reported in 2010 because the sale would occur in 2011. Because Excello still possess the goods at the end of the year, the sale recognition cannot occur. The financial statements have to reflect the true accounting activities for 2010, so the reports are transparent, reliable and consistent. If Excello went ahead and reported the revenue in 2010, the report will not be truthful and unreliable for

AICPA Code of Professional Conduct principles prevents vises such as fraud that are experienced in accountancy field. Audit is the best measure of the effect of the fraud that are imposed to investors by accountants. The relationship of the investors and account holders are supposed to be affirmed through auditing to ensure accounting principles are upheld(Weirich, Pearson, & Churyk, 2010). Improper loss of the funds through propagation of the accountant officer should be treated as fraud and criminal activity that should lead to prosecution. Therefore, the paper seeks to relate two fraud cases that have been audited and presenting AICPA Code of

City has commenced a lawsuit against. Winston based on the following causes of action: Constructive fraud is to unintentionally plan to deceive someone for the purpose to make money for products or services. For example; participating in an unfair transaction in which the other party is at a disadvantage. In this case, Winston did not follow the auditing regulations that hold him liable to report any findings of concern to management and to the Board of directors. The failure to report his suspicions of the embezzlement by Bells bookkeeper, Winston is responsible to the third parties that used his unqualified opinion as part of their decision making process and to City based on constructive fraud. City is likely to prevail against Winston based

During the performance of this integrated audit, require numerous judgments about the internal control and overall financial reporting and how well it addresses risks of material misstatements within the financial statements (AICPA, 2014). After re-evaluating the previous errors found from the previous audit, the audit team found the corrective actions to be appropriate and justified in elimination of human error by implementing additional checks and balances within the manual process. No additional misstatements have been found and all internal controls off the financial reporting seem appropriate and just.

I prepared a draft engagement letter for the City of Richmond using last year’s letter.

Following the risk assessment procedures, substantive procedures are designed and conducted to detect material misstatements of relevant assertions. Substantive procedures include analytical procedures and tests of details. Analytical procedures involve evaluations of financial statement information by a study of relationships among financial and nonfinancial data. Tests of details may be divided into three types. One test is the test of account balances to address whether there are misstatements in the ending balance of an account. In the case of Crazy Eddie, auditors should have put greater attention to inventory and accounts payable accounts. The second test is a test of classes of transactions to determine whether particular types of transactions have been properly accounted for during the period. Crazy Eddies fraudulently classified these transshipping transactions as retail sales to inflate its sales revenue and continue growth at existing stores. A key ratio for retailers is to compare growth in existing stores to growth from new stores. The third and final test is a test of disclosures to evaluate whether financial statement disclosures are properly presented. Crazy Eddie prepared bogus debit memos of over $20 million to understate accounts payable.

The external users that will want financial information about the company will receive false information because the books are incorrect and this one egregious error will be the tip of the iceberg. Once the external users lose confidence in the company then the company will be doomed to fail because of that lack of trust coming from the accounting department, the very ones that control the money.