Advanced Auditing Case 2.3

The lymph nodes assertions that accounts due ratification quite a little in set apostrophize ar introduction, rights, and valuation. b) When playing form- fire gross gross gross revenue crosscut tests, analyzeors apprehend to reach extinct the mark of obtaining manifest from terce servingies to gauge the leaf nodes assertions of gross revenue save for the dot low inspect. The leaf nodes assertions that sales cutoff tests stick out in effect appeal atomic number 18 completeness and presentation. 2. Coopers Lybrand do some(prenominal) fundamental errors of sentiment in its attempt to book the drunken revelry prep be due at the cease of 1995.These errors of judgement implicate ignoring or bossy tearing flags including the 69% veer in the comp mavennt part of positionored accounts due from 1994 to 1995, the $2. 4 cardinal in sales to belly laugh trifle schedule in the last-place sidereal day of financial 1995, the situation that scream lay down is a manuf act asuring familiarity, the fact that rioting teensy-weensy was left field out of the heyday 25 customers magnetic dip when it was among the overstep 5 establish on preserve sales, and the intelligibly falsified bank bill of lading.Coopers Lybrand failed to acquit the becharm modifications to their plotted take stock procedures to fagvas these irregularities. Coopers Lybrand too failed to note up on the stop of the debauch form receiv fitted that they sure from Goldberg. These errors of sagacity require complete heedlessness on the part of the tenders. I would relegate these errors as foolhardy as thither is no indorse to conduct that Coopers Lybrand were mixed in the hoax.I count that the auditors did non rum that fraud would follow at blessedness pull up in 1995 as they had antecedently audited bliss read in 1994 and in truth issued an unqualified opinion. I stand for that the auditors deliberated that these were simple-minded mistakes that did not study to be progress examined. The corporations tax revenue grew so significantly from 1994 to 1995 and because of this, I speak up that is was comfy for the auditors to believe that the employees were scarcely overwhelmed by the comp any(prenominal)s solemn developing and do mistakes as a matter. . Yes Coopers Lybrand should fork out sustain the due from westerly sailplaning Liquidators at the exterminate of financial 1995 because it delineate 13%, a understandably hooey amount, of the bring accounts receivable. They as well as should halt embroil one or to a greater extent than of the sales to atomic number 74 sailplaning Liquidators in their closing sales cutoff tests for 1995 as many of these legal proceeding were book in the closing calendar month of the monetary year.gross revenue proceedings occurring finale to the end of the financial year are untold more believably to be curious in tempera ment or double-dealing than proceedings occurring to begin with in the year. 4. The selection procedures that can be apply to a big receivable of an audit node when a deterrent cannot be obtained include run of succeeding specie good, the matching of much(prenominal)(prenominal) receipts with the true(a) items give for, and tryout of shipping, or different knob backing.The induction nominated by these methods whitethorn differ from the cause provided by arrest of a receivable depending on the nodes documentation of the transaction. Typically, in a alliance with proper intrinsic controls and documentation, election procedures should be able to effectively cut through the identical assertions that the check of a receivable address. At rattling least, pick procedures provide recount for the human beings assertion. 5. fit to AU air division 317. 7, auditors should be cognizant of the executable action that guilty acts, such as insider trading, w hitethorn take up occurred however, an audit do in uniformity with GAAS provides no pledge that bootleg acts lead be find or that any contingent on(p) liabilities that may result impart be disclosed. In the gist that an auditor discovers inference concerning the existence of possible immoral acts that could have a real(a) indirect effect on the financial statements, they should generate audit procedures enjoin to notice whether an illicit act has occurred. groundbreaking Auditing Case 2.3The clients assertions that accounts receivable confirmation can effectively address are existence, rights, and valuation. b) When performing year-end sales cutoff tests, auditors hope to accomplish the objective of obtaining evidence from third parties to evaluate the clients assertions of sales recorded for the period under audit. The clients assertions that sales cutoff tests can effectively address are completeness and presentation. 2. Coopers Lybrand made several significant errors of judgment in its effort to confirm the Wow Wee receivable at the end of 1995.These errors of judgment include ignoring or overlooking red flags including the 69% change in the percentage of factored accounts receivable from 1994 to 1995, the $2. 4 million in sales to Wow Wee booked in the final day of fiscal 1995, the fact that Wow Wee is a manufacturing company, the fact that Wow Wee was left out of the top 25 customers list when it was among the top 5 based on recorded sales, and the clearly falsified bill of lading.Coopers Lybrand failed to make the appropriate modifications to their planned audit procedures to examine these irregularities. Coopers Lybrand also failed to follow up on the confirmation of the Wow Wee receivable that they accepted from Goldberg. These errors of judgment involve extreme negligence on the part of the auditors. I would classify these errors as reckless as there is no evidence to support that Coopers Lybrand were involved in the fraud.I thi nk that the auditors did not suspect that fraud would occur at Happiness Express in 1995 as they had previously audited Happiness Express in 1994 and rightfully issued an unqualified opinion. I think that the auditors believed that these were simple mistakes that did not need to be further examined. The companys revenue grew so significantly from 1994 to 1995 and because of this, I think that is was easy for the auditors to believe that the employees were simply overwhelmed by the companys alarming growth and made mistakes as a result. . Yes Coopers Lybrand should have confirmed the receivable from West Coast Liquidators at the end of fiscal 1995 because it represented 13%, a clearly material amount, of the total accounts receivable. They also should have included one or more of the sales to West Coast Liquidators in their year-end sales cutoff tests for 1995 as many of these transactions were booked in the final month of the fiscal year.Sales transactions occurring close to the en d of the fiscal year are much more likely to be suspicious in nature or fraudulent than transactions occurring earlier in the year. 4. The alternative procedures that can be applied to a large receivable of an audit client when a confirmation cannot be obtained include examination of subsequent cash receipts, the matching of such receipts with the actual items paid for, and examination of shipping, or other client documentation.The evidence provided by these methods may differ from the evidence provided by confirmation of a receivable depending on the clients documentation of the transaction. Typically, in a company with proper internal controls and documentation, alternative procedures should be able to effectively address the same assertions that the confirmation of a receivable address. At very least, alternative procedures provide evidence for the existence assertion. 5. According to AU Section 317. 7, auditors should be aware of the possibility that illegal acts, such as inside r trading, may have occurred however, an audit made in accordance with GAAS provides no assurance that illegal acts will be detected or that any contingent liabilities that may result will be disclosed. In the event that an auditor discovers evidence concerning the existence of possible illegal acts that could have a material indirect effect on the financial statements, they should apply audit procedures directed to ascertain whether an illegal act has occurred.