Pages 3 (691 words)
After reexamining the common size fiscal statements and the cardinal ratios of Leslie Fay. there some of the fiscal statement point that should hold been of peculiar involvement to BDO Seidman:
- Gross saless: the gross revenues has been turning steadily except the little bead in 1991. which is contrary to the industry recession.
- 2 Inventory: Leslie Fay has been known for non catching up the manner. there should be inventory write-off issue in the dress industry. which haven’t been reflected in the stock list history though.
Other fiscal info that the hearer might hold obtained:
- The contract or understanding of Leslie Fay and section shops to verify the A/R and liability
- Documentation with its client sing its orders
- Its recognition and bad debt write-down policy
Non-financial factors the hearer should see:
- The industry
- Impact of economic system on this peculiar industry and company
- The company’s construction. history and forces
- Government ordinances that have influenced or will demo the attempt on the company
Paul Polishan’s laterality has double deductions on the audit:
- Suppose he’s a morally-impeccable individual who did everything right and held high unity and duty towards the company.
his laterality still shows an internal control failing which lack the segregation of responsibilities. Such system is prone to the fraud and if Mr. Polishan is ill or absent from work for whatever ground. the finance section might non work good.
- Mr. Polishan’s laterality explained the fraud he perpetuated and hid.
The audit should take this into consideration when be aftering the audit.
Mr. Polishan’s laterality might bespeak a weak internal control system. which should be evaluated at higher hazard and more substantial trial should be planned thenceforth. The audit should besides ask more people. including other staff in the finance section and the company’s providers to verify the histories instead than seting inordinate religion in what Mr. Polishan has tried to hold the audit believe.
SEC ruled that BDO Seidman’s independency was jeopardized because it’s been foolhardy in scrutinizing the ruddy flags shown in Leslie Fay’s fiscal statements.
Receivables from clients and other securities firm houses normally histories for 90 % or more of a brokerage’s entire assets. enforcing the biggest internal control hazard. The specific hazards of J. B. Hanauer includes: the extended duty of its gross revenues staff. The hearer hasn’t sufficiently taken this into consideration and didn’t decently look into these hazards. Their uncertainties were allayed by the Hanauer’s response to the SEC countenances.
Hanauer’s hearer sent out the verification missive to verify the being of the history receivables and its dollar value.
- For the first type of history which carries recognition balances represented clients to whom Hanauer owed hard currency at year-end. the hearer aim is to verify the hard currency balance is right under the right name.
- For the 2nd type stand foring clients who owed hard currency to the securities firm house. the hearer aim is to verify the firm’s non exaggerating it.
- For the 3rd and 4th group. the hazard is much smaller since there are small room for the house to pull strings them.
- For the histories the client didn’t want confirm. the extra processs may include: enquiry of the direction and gross revenues individual. read certifications about these histories and dealing history and resign if the client insists on non leting them to corroborate these histories.
- Material audit range restriction is some actions from the client taking to the dollar value large plenty to act upon the user of its fiscal statements if non disclosed. I wholly agree with SEC that Hanauer’s direction imposed a stuff range restriction on the audit because the dolar value of unmailed verification histories for 18 % to 26 % of dollar value of histories selected for verification. which is extremely material.
- The audit client should be allowed to “follow” its engagement audit spouse to another accounting house because it evidently breach the independency of the hearer after hammering a relationship with the clients. SOX specified the “cooling-off” period for the hearer from come ining the client direction. this serves the same intent as good.