Question 1
The risk factors identified by the E&Y audit included; the dominance of the company, the absence of internal audit functions , lack of proper segregation of duties within the company accounting department. In addition, there is aggressive positions taken by management personnel regarding critical accounting areas. These risk factors had an impact on the audit in that the E&Y would have to suffer damage to its reputation and monetary values due to the close monitoring engagement which posted a higher than average audit risk.
Question 2
The audit procedures involved the search for unrecorded liabilities at April 30, 1992, until the end of the field work. It also emphasized on the acquiring of the vendor statements for CBI’s April 30, 1992, five largest suppliers, and examining reconciliations to the accounts payable balance for those suppliers. Alternatively, the 1992 audit program required the auditors to obtain the year –end –statement sent to CBI by the company’s largest vendors and to reconcile the balances in each of these declarations to the corresponding balances reported in CBI’s records account (Bragg, 2007).
Question 3
During the auditing period, the auditor E&Y readily accepted the internal documents supporting the advances explanation that was prepared to deceive E&Y as per the court testimony. The auditors failed to investigate the alleged advances rigorously. E &Y neglected to determine the credit limit that the given vendors had established for CBI or whether CBI had maxed out that credit limit in the case as maintained by the client’s personnel.
The auditor did not investigate the credit limit concerning the alleged advances and the client’s veracity explanation for the advance. The auditor neglected to determine the credit limit that the given vendor had established for CBI or whether CBI had mixed out that credit limit as maintained by the client personnel. The auditor did not attempt to analyze the given vendors payable accounts or contact those vendors directly to determine if the allegedly k
The advance explanations recorded in E&Y work papers, did not tell the auditor the essential fact as to whether the merchandise paid for by the advance had been received before or on April 30, 1992.The E&Y auditors failed to determine whether a liability should have been recorded for each such payments as of fiscal year end due to lack of substantive investigations. (Knapp & Knapp, 2012).
References
Bragg, S. M. (2007). Accounting best practices. Hoboken, NJ: John Wiley.
Knapp, M. C., & Knapp, M. C. (2012). Contemporary auditing: Real cases and issues: Custom edition for McGill University. Toronto, Ont.: Nelson Education.
