By Thomas P. Houck
Listed below are the essential steps that accounting agencies needs to take to enhance audit caliber. the writer offers special assurance of vital subject matters resembling risk-based auditing ideas, analytical systems, expertise, and inner controls. After explaining why often used audit ways are insufficient for detecting fabric fraud, the author:Provides particular and useful information to assist auditors behavior better caliber auditsOffers assistance to monetary executives on how you can overview their autonomous auditsDescribes the stairs that accounting corporations needs to take to enforce those much-needed changesOrder your reproduction this present day!
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Extra resources for Why and How Audits Must Change: Practical Guidance to Improve Your Audits
As a result, the primary directional risk in the audit of net fixed assets is overstatement. In other words, if management wants to boost the bottom line, it will overstate this balance. During planning, the engagement team discusses the risks in this audit area, including how management could intentionally alter the financial results. The auditors identify numerous techniques that the company could use to inflate its bottom line. qxd 5/30/03 12:06 PM Page 51 The Risk of “Cooking the Books” ◆ Capitalizing items that should be expensed (a trick most famously used by WorldCom) ◆ Failing to depreciate new equipment or facilities that were placed in service ◆ Changing the residual values of equipment (and taking the difference into income) ◆ Extending useful lives to lower depreciation expense ◆ Selling fixed assets and recording the proceeds as “other income” (while not removing the assets from the books) After developing this list, the engagement team must determine how concerned it is about these particular risks.
In each example, management made a business decision with the primary purpose of influencing financial results. The General Electric Corporation has been famous (or notorious, depending on your viewpoint) for its ability to generate consistent earnings. Although the company has not yet been accused of cooking its books, it appears that General Electric routinely cooked transactions to achieve its financial goals. ” One reporter even suggested that if we took a charge to close a business in one quarter and took a gain to sell another business in the following quarter, our earnings would not have been consistent.
4. Id. 5. Jack Welch, Jack Straight from the Gut (New York: Warner Books, 2002), 113. 6. AccountingWeb. id=90356, 7. ” Accounting Today, October 26, 1998, p. 61. 8. Mark Stevens, The Big Six (New York: Simon & Schuster, 1991), p. 31. 9. Jeff D. Opdyke, “Aspiring Midas Enmeshes Auditors in Gold Chain,” Wall Street Journal, March 1, 2002, sect. C. 10. Charles W. Mulford and Eugene E. Comiskey, The Financial Numbers Game: Detecting Creative Accounting Practices (Hoboken, NJ: John Wiley & Sons, 2002).
Why and How Audits Must Change: Practical Guidance to Improve Your Audits by Thomas P. Houck