The General Accounting Office prepared a report showing thatmany publicly-owned companies restated their financial statementsduring the period 1997 to 2001. Of course, they did not includehappenings such as the situation reported in The Wall StreetJournal, which told its readers that Qwest Communications (whichowns one of the Bell telephone companies) had restated its priorfinancial statements four times from July 2002 to February2003.
Assume that on one of the Sunday television news programs,whether Sunday morning as in Meet the Press or Sunday evening suchas 20/20, an accounting professor was being interviewed. "Hello,professor. Tell our viewers a little about yourself." "I amProfessor Blahblah. I am a certified public accountant, I amlicensed to practice as a certified public accountant, I have anearned doctorate in accounting, and I presently teach auditing atthe university level. Sometimes the department also has me teach acourse in accounting information systems, which I teach as a way ofdesigning accounting systems to provide information to decisionmakers." "What do you think of this situation of Qwest restatingits financial statements four times in seven months?" "Oh, this isterrible. The management of Qwest had a duty to file auditedfinancial statements with the SEC, and to provide those auditedfinancial statements to each of the company's stockholders.Naturally, those financial statements were required to be truthful.The accounting firm which audited those financial statements had aduty to design its audit to assure itself that those financialstatements were free of material misstatement, whatever the cause.If Qwest restated its financial statements four times in sevenmonths, then as they say in law, res ipso loquitur, which means'the thing speaks for itself.'" In other words, the very fact thatthe company restated its financial statements four times in sevenmonths, and by material amounts each time, suggests that neithermanagement nor the auditors did what they were obligated todo."
"Thank you, Professor Blahblah. Do you think our millions ofviewers should know anything else?"
"Yes, I do. If management was making decisions based on thosewrong numbers, then management probably made some bad decisionswhich they would not have made if they would have used correctnumbers."
"Thank you very much, Professor Blahblah. Let's hope that noneof our millions of viewers was among the people who sufferedfinancially as a result of what management and the auditors did orfailed to do."
Required:
1. Does the audit firm which gave clean opinions on thoseoriginal sets of financial statements have any obligation to doanything now about those earlier audit reports? Cite theauthoritative professional literature.
2. Design an audit program for asserted and unasserted claimsagainst this client company. Cite the authoritative professionalliterature related to the claims, and show how your audit programfulfills your professional responsibilities.
Thanks
The General Accounting Office prepared a report showing thatmany publicly-owned companies restated their financial statementsduring the period 1997 to 2001. Of course, they did not includehappenings such as the situation reported in The Wall StreetJournal, which told its readers that Qwest Communications (whichowns one of the Bell telephone companies) had restated its priorfinancial statements four times from July 2002 to February2003.
Assume that on one of the Sunday television news programs,whether Sunday morning as in Meet the Press or Sunday evening suchas 20/20, an accounting professor was being interviewed. "Hello,professor. Tell our viewers a little about yourself." "I amProfessor Blahblah. I am a certified public accountant, I amlicensed to practice as a certified public accountant, I have anearned doctorate in accounting, and I presently teach auditing atthe university level. Sometimes the department also has me teach acourse in accounting information systems, which I teach as a way ofdesigning accounting systems to provide information to decisionmakers." "What do you think of this situation of Qwest restatingits financial statements four times in seven months?" "Oh, this isterrible. The management of Qwest had a duty to file auditedfinancial statements with the SEC, and to provide those auditedfinancial statements to each of the company's stockholders.Naturally, those financial statements were required to be truthful.The accounting firm which audited those financial statements had aduty to design its audit to assure itself that those financialstatements were free of material misstatement, whatever the cause.If Qwest restated its financial statements four times in sevenmonths, then as they say in law, res ipso loquitur, which means'the thing speaks for itself.'" In other words, the very fact thatthe company restated its financial statements four times in sevenmonths, and by material amounts each time, suggests that neithermanagement nor the auditors did what they were obligated todo."
"Thank you, Professor Blahblah. Do you think our millions ofviewers should know anything else?"
"Yes, I do. If management was making decisions based on thosewrong numbers, then management probably made some bad decisionswhich they would not have made if they would have used correctnumbers."
"Thank you very much, Professor Blahblah. Let's hope that noneof our millions of viewers was among the people who sufferedfinancially as a result of what management and the auditors did orfailed to do."
Required:
1. Does the audit firm which gave clean opinions on thoseoriginal sets of financial statements have any obligation to doanything now about those earlier audit reports? Cite theauthoritative professional literature.
2. Design an audit program for asserted and unasserted claimsagainst this client company. Cite the authoritative professionalliterature related to the claims, and show how your audit programfulfills your professional responsibilities.
Thanks
