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Ref No: 3854
Audit Procedures:
Identity And Ethical Dilemmas:Because capitalization of expenses is allowed in some instances like Qualified Borrowing Costs, fraudsters use the idea to mislead the users by cooking financial statements. This happened in the case of Wordcom too, when expenses were capitalized to show increased profits. Although the audit does not guarantee the prevention of material misstatement, some procedures could have been useful in avoiding the problems that occurred in the case of AstunIT PLC. For the sake of ethics, the auditor or accountant might have to work secretly in the absence of the staff practically suspected of fraud. This is exactly the internal auditors did in the case of Wordcom to investigate and reveal the fraud worth $3.8billion (Susan, 2008).
The most important aspect of the fraud came from the way the expenses were classified. This is one of the fundamental risks of misstatements that arise in the financial statements. Checking if the assets and expenses have been recorded in the appropriate accounts could have led to the detection of the expenses which were capitalized. The audit for completion of expenses could also have pointed out the problem. The jump in the expenses figure from £67,000 to £307,000 in 1998 is the obvious sign of the risk of material misstatement that should have been investigated. The audit of the financial statements for the year 1999 should also have pointed out and investigated the fall in expenses from £307,000 to £54000……………………………
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