CASE STUDIES Case 8.1: Audit Adjustments You are a CPA/auditor for a multination
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CASE STUDIES Case 8.1: Audit Adjustments You are a CPA/auditor for a multinational CPA firm. You are the senior auditor on an annual audit of a manufacturing company. The company was a small subsidiary of a larger firm located on the east coast. As with many parent- subsidiary relationships, there was tremendous amount of pressure on the subsidiary company's management to reach certain projected sales goals for the year. Because of this, the climate at the manufacturing subsidiary was tense. You and your audit team were engaged to perform an Page 315Explanation / Answer
Case 8.1:
Q 1--- The correct thing to do would be to insist on the revenue adjustment. This will not only save my future position but also save the controller, president of the Company besides protecting all the stakeholder’s interest.
Q 2 – As an auditor I would be prepared to lose the auditing and consulting business with a company of this kind which does not have any value for ethical code.
Q 3 – If my boss insists on complying with the company’s ways of recording I will accept the courseof action taken by the company for not issuing the clean report as per their choice.
Q 4 --- There is a conflict of interest auditing firm is facing. Though the firm as part of its job took the facts of the case to the management of the company, the company is not only following the correct path suggested but also insisting on the audit firm take wrong path. This case is almost similar to Sathyam Computers which later on came to be recognized as Asathyam computers and landed CEO and others in total trouble. Therefore as an individual, whatever position one may hold, one must have strong Conviction in ethical code.
Case 8.3:
Q 1 --- The request to support the merger is a conflict of Interest. If is because we are not sure whether the merger is a good long-term situation and therefore we do not freely want to endorse it but getting pressure from the investment bankers working on the merger, to issue the opinion in support of the merger.
Q 2 ---- In my opinion Stock analysts should be free to “put their money where their mouth is” but should have strong conviction to stand by their recommendation which comes as an outcome of this conviction.
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