Minicase Solutions Essay Example

Minicase Solutions Paper According to the Merriam-Webster Online Dictionary corrupt means (selected meanings relevant to this issue): to change from good to bad in morals, manners, or actions or to degrade with unsound principles and or moral values to become morally debase to cause disintegration or ruin The term corrupt, especially as indicated in second bullet above, could be applied to the actions of Andersen as a firm and might indicate that the firm avgas corrupt. It is important here to know how the definition normally used by the SST Circuit Court included the word dishonest, which does not appear in any of these definitions. 2. The issues are debatable and still center on the motives Of David Duncan when he ordered the shredding of documents and whether Andersen had an obligation to modify its procedures if an investigation was imminent. Remember, once Andersen was served with formal notice of an investigation, no documents were shredded. 3. The opinions of students will vary. Clearly, the contested issues concerning jury instructions were all decided in favor of the prosecution, The fact that by impeding an investigation, even without meaning to do so, was allowed to indicate that an obstruction of justice occurred could have major legal ramifications it used as a precedent. For example, it on your way home from class you inadvertently got in the way of a police officer responding to a crime, under he impede rule, could PU be guilty of obstruction of justice? 4. Again, opinions will vary. We will write a custom essay sample on Minicase Solutions specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Minicase Solutions specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Minicase Solutions specifically for you FOR ONLY $16.38 $13.9/page Hire Writer However, with hindsight and based on the actions taken in the KEMP investigation, the loss of one of the large CPA firms and the loss of jobs appears to be a penalty to too many innocent people. It is probably more appropriate to seek out individuals who engaged or directed illegal activities and take the appropriate actions against those individuals. 5. Students should understand that even if an action is legal it may not be ethical. Clearly, there were some actions taken that are questionable. The reminisces of ethics require auditors to act with integrity and to be mindful of the public trust. There are clearly issues Of integrity and the public trust in both the audit work and the shredding of documents following the disclosure that Enrons financial statements were fraudulent. 6. Opinions will vary. David Duncan directed the actual shredding of documents and probably knew an investigation was imminent. Even if he received direction from Nancy Temple concerning the document retention policy, he had the opportunity to determine the applicability of the policy to the situation and the mummifications outlining the policy in this instance. Remember, many people have gone to jail or suffered even greater consequences utilizing the defense that they were only following orders or, in this case, policy. 7. In litigation the plaintiffs attorneys often name multiple defendants. They do this for two basic reasons. First, if one of the plaintiffs is found harmless (the tort case equivalent of hot guilt, other plaintiffs may be found negligent or to have engaged in fraudulent actions. Therefore, the plaintiffs may still prevail (and collect damages) against those defendants. Second, if one or more defendant becomes insolvent (which may happen during a long trial where legal fees can escalate and cause create cash flow problems), the plaintiffs may collect from other defendants found liable in the lawsuit. This ability to collect in full from those who have the ability to pay is the basis for joint and several liability. Class action lawsuits can be the most damaging to plaintiffs. Several plaintiffs (sometimes thousands of plaintiffs) can file one lawsuit seeking damages that can total into millions Of dollars if proven. In addition, class action lawsuits may often e heard in several jurisdictions. Allowing the plaintiffs attorneys the ability to shop for a court they believe will be sympathetic to their clients. If a class action lawsuit is not allowed, many of the smaller claims may be dropped (the costs of the lawsuit outweighs the potential reward) and even larger suits must bare the legal fees individually. Further, the defense team is not engaging in a Winner take all contest. Each suit, possibly heard in different jurisdictions, will be required to prove its individual case for its plaintiff. OPT CLUB THE HARBINGER go THINGS TO COME? I _ Both Andersen and Elevenths Warmouth placed increasing profits as a greater priority than quality work or the public interest. While all firms engaged in providing services try to satisfy their client needs, firms must evaluate the overall situation and must consider their reputation for quality and doing the right thing. The desire to do whatever it takes to retain the client cost both firms greatly. 2. Students can debate this at great length. Clearly people tend to look at past events in shaping their decisions. We may have never been in a serious car accident, but knowing individuals that have had such experiences often hanged our driving habits. On the other hand, criminal psychics tells us that individuals that engage in criminal or unethical behavior rarely think about getting caught. This is especially true for top executives at firms and corporations that have often risen to their high position by taking significant risks in their career. They have reached the top level to the organization because these risks have generally proven rewarding. These past events often lead individuals to exhibit significant hubris in their decisions and actions. 3. Again, this is a question that can provide significant debate. There is no CPA or other authoritative pronouncements that has stated any restrictions on the use of an audit report on the financial statements as long as the accompanying information is not misleading. Clearly, the client paid for the product and, as such, has the right to its use. Indeed, using it to allay financial fears of investors and customers is clearly a societal demand for the existence Of an audit function. On the other hand, auditors do not write their audit reports such that it is suitable a general marketing tool. Audit reports are written for individuals hat understand the nature of auditing and financial reporting. A CPA firm may be able to restrict the use of its audit report through its engagement letter. However, the use of the audit report for unintended purposes may best be prevented through auditor/client communication and a continued professional relationship. The client should be encouraged to discuss uses Of its financial statements and accompanying information (including the auditors report). Misuse of the audit report over the firms objections should be a factor debated during the retention discussion for next years audit. . Normally a sales cutoff is performed only to determine that sales were recorded in the appropriate period. Therefore, it would not be within the normal audit procedures for Dolomite auditors to evaluate subsequent sales for other purposes. However, it can be argued that professional skepticism should require the auditor to evaluate sales (even subsequent sales) in evaluation of the limits placed on these sales, This should illustrate that doing what was done in prior audits or following audit programs blindly may not be sufficient to uncover existing problems. Conversely, Elevenths Homage audited sales and had no knowledge of the sales limits. This illustrates a lack of complete understanding of the clients business and sales process. S. Generally audit firms accept high-risk clients when revenue is deemed to exceed the risk. This often occurs when firms place an inordinate emphasis on maintaining or increasing revenue. 6. Many analytical procedures may be used especially those that looked at solvency. However, a vertical common size financial statement may be the best analytical procedure. The use Of expenses as a percentage Of sales, specifically n executive compensation and non-operating expenses, may have indicated to the auditors that insufficient earnings were flowing back into the organization. Clearly, audit procedures designed to look at executive compensation should have detected the underlying problems (the most likely did detect the problems; however, the red-flags were ignored). Confirmations with suppliers may have indicated missing documentation for construction. 7. Staff auditors are often reluctant to rock the boat. Often a staff auditor (with limited experience) is at a client that has been audited for many years either y his firm or another firm and processes have not be previously questioned. Members of the clients accounting and management teams are viewed as experts in their industry, business, and/or practice (e. . A payroll clerk who has been processing payroll for the client for 10 years), In addition, in-charge auditors, managers, and partners may have been past auditors of these practices and a question of the practice may be viewed as a question of the prior audits of the process. In addition, staff auditors often do not want to be the source of conflict between the client and the firm and view the questioning of the clients recesses and procedures as a potential conflict. 8. Ethics standards state that auditors should not accept engagements where they do not have (and cannot get) sufficient competence. OPT avgas clearly a unique business. Auditors accepting this engagement should have knowledge of not-for-profit accounting including issues regarding the raising of funds and the proper expenditure Of funds. L Auditors could spend additional time in the P TTL business following and understanding processes. Auditors may hire a consultant (specialist) to work With the firm to better understand the unique aspects Of the equines. Auditors may hire additional staff with experience in auditing other not-for-profit religious organizations that had some similar elements. 9. While in an audit off for-profit client tax issues may be viewed as a separate engagement. Only the issues of tax expense, tax payable and deferred taxes as they appear on the financial statements may be an audit issue. A not-for-profit organizations very existence may depend on maintaining its not-for-profit status. Therefore, significant violations that threaten this status may be viewed similarly to a going concern issue. As in evaluating going concern issues, auditors need to be aware of any items identified during the audit that threaten the not-for-profit status Of the organization (for an example see footnote l). 0, Clearly the preparation of checks violated the code of ethics as the auditors were knowingly acting as an employee of the organization and engaging in questionable client activities. Not signing the checks was a futile attempt by the auditors to meet the letter of the ethics standards. Students must understand that ethics transcends the few principles and rules set forth by the CPA and often trying to meet a standard (by not signing the check) cannot cleanse clearly unethical behavior. Undoubtedly, this issue would violate the principle Of the public trust as avgas a mechanism to donated funds sent to the organization by individuals to foster the work Of the OPT Club. Not-for-profit organizations are required to have mission statement. All money expended by the organization must be spent in fostering that mission. In auditing a not-for-profit organization it is imperative that auditors evaluate expenditures for proper use as well as all CPA assertions. Improper expenditure of money may result in the organization losing its not-for-profit status. RUNNING ON EMPTY I _ Examining the financial information in Exhibit I, it appears that Gas financial distress began in 2005_ It was during this year that GM suffered its first negative operating loss and first net loss. Similarly, Exhibit 2 reveals that Gems stock price significantly declined during 2005. 2. Professional standards identify the following factors indicative Of going- concern uncertainties: Negative trends (such as recurring operating losses, working capital deficiencies, active cash flow from operating activities, or adverse changes in key financial ratios). Other indications of financial difficulties (default on loan or similar agreements, reassess in dividends, denial of usual trade credit from suppliers, restructuring of debt, noncompliance with statutory capital requirements, the need to seek new sources or methods of financing, or the need to dispose of substantial assets). Internal matters (work stoppages or other labor difficulties, substantial dependence on the success to a particular project, uneconomic long-term commitments, or the need to significantly revise operations). External matters (legal proceedings; legislation; loss of a key franchise, license, or patent; loss of a principal customer or supplier; or, uninsured or undesired catastrophes 3. This is a question that requires judgment on the part Of the student. Clearly, while the losses in 2005 are of concern given Gems consistent profitability to that point, 2005 may have been viewed as an abnormal year and the loss judged to be a one-time occurrence. While GM also experienced a net loss in 2006, the amount Of this loss was louver than that in 2005 (likely because Of the spin-off Of GAMMA). In OTOH years, GM showed negative cash flow from operations, raising further questions as to Gems ability to continue as a going-concern. In 2007, Gems net loss reached almost $39 billion; however, cash flow from operations was a positive SO,7 billion in that year. Based on ALAS 341, the third consecutive year of recurring operating losses (see (2) above) might be interpreted as some to have been indicative of going-concern uncertainties. However, it is also reasonable to conclude that the positive cash flow from operations in 2007 might mitigate Dolomite Touches concerns to some extent. The following general economic factors in 2008 may have contributed to Dolomite Touches decision to issue an opinion modified for going-concern uncertainties: High oil prices, which resulted in high gasoline prices that reduced consumer demand for trucks and sports utility vehicles. The international credit crisis, which resulted in increased difficulty for Gems customers in obtaining credit, reducing demand for all vehicles. The general worsening of the U. S. Economy (including extensive layoffs and increases in unemployment), Which reduced consumer demand for all vehicles. 5. While it is far too early to comment on Gems potential success, these events following the GM bankruptcy may alleviate some Of the concerns Of Dolomite Touchà ©: Increased access to consumer credit and a more positive U. S. Economy, which may increase demand for vehicles. The terms of the restructuring plan, which provided the following potential benefits to GM: (a) additional capital; (b) organization of the less viable GM brands under Motors Liquidation Company; and, (c) reduced levels of debt, employees, dealers, and manufacturing plants (Exhibit 3). The Cash for Clunkers program that temporarily increased consumer demand or vehicles. The primary issue raised by a going-concern opinion is the continued existence of the entity receiving that opinion. Many speculated that such an opinion would make customers wary of purchasing automobiles from GM. Because of the inability to obtain parts or warranty service on the automobile if GM were to fail. With respect to investments in GM. The potential failure of an organization would make investors similarly wary. There is no correct response as to Whether a going-concern opinion is a self- fulfilling prophecy. The threat of continued existence is one that will never be solved with certainty.