Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them. To explain: Whether or not the members’ description is sufficient to assess their qualification. Also, explain whether or not the number of meetings is sufficient to fulfill their responsibilities. Also, explain the additional information that might be required and the manner to obtain that information.

Question

In the Why It Matters feature “Examples of Theft and FinancialReporting Frauds” at the beginning of the chapter, we introduced youto the Koss Corporation fraud. In this problem, we provide you withfurther details about that fraud. During the fall of 2009, Koss Corporation,a Wisconsin-based manufacturer of stereo headphone equipment,revealed that its vice president of finance (Sujata “Sue” Sachdeva) haddefrauded the company of approximately $31 million over a periodof at least five years. Grant Thornton LLP was the company’s auditor,and the firm issued unqualified audit opinions for the entire period in which they worked for Koss. According to reports, Sachdeva’s theftaccelerated over a period of years as follows:FY 2005 $2,195,477FY 2006 $2,227,669FY 2007 $3,160,310FY 2008 $5,040,968FY 2009 $8,485,937Q1 FY 2010 $5,326,305Q2 FY 2010 $4,917,005To give you a sense of the magnitude of the fraud, annual revenuesfor Koss Corporation are in the range of $40 to $45 million…

Answer 1

Question

Chapter 2, Problem 51FF

a.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:Whether or not the members’ description is sufficient to assess their qualification. Also, explain whether or not the number of meetings is sufficient to fulfill their responsibilities. Also, explain the additional information that might be required and the manner to obtain that information.

b.

To determine

Introduction: Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

The audit committee financial expert and whether the individual will truly be able to fulfill the assigned role. Also, state the reason that audit committee member shall have financial expertise.

c.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:Whether or not the compensation received by the members were adequate.

d.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:The weaknesses in the audit committee governance structure.

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In the Why It Matters feature “Examples of Theft and FinancialReporting Frauds” at the beginning of the chapter, we introduced youto the Koss Corporation fraud. In this problem, we provide you withfurther details about that fraud. During the fall of 2009, Koss Corporation,a Wisconsin-based manufacturer of stereo headphone equipment,revealed that its vice president of finance (Sujata “Sue” Sachdeva) haddefrauded the company of approximately $31 million over a periodof at least five years. Grant Thornton LLP was the company’s auditor,and the firm issued unqualified audit opinions for the entire period in which they worked for Koss. According to reports, Sachdeva’s theftaccelerated over a period of years as follows:FY 2005 $2,195,477FY 2006 $2,227,669FY 2007 $3,160,310FY 2008 $5,040,968FY 2009 $8,485,937Q1 FY 2010 $5,326,305Q2 FY 2010 $4,917,005To give you a sense of the magnitude of the fraud, annual revenuesfor Koss Corporation are in the range of $40 to $45 million…

Use the three-step approach to analyse the following ethics-related issues using APES 110 and Corporations Act 2001. An audit senior, John Smith, is in the engagement team of ABC Bank, and he also has a mortgage account with the bank worth $500,000. John is paying an interest of 2.2% to the bank. The current market prevailing interest rate is between 1.9% and 2.3%.

42-Mr. X is an auditor of XYZ Company. During the course of audit, he found that Mr. Y who was one of the executive directors of the company raised OMR 15,000 from the debenture holder which was beyond his authority. On confirming, he replied by e-mail that it was later approved by board. Can the e-mail received from executive director be considered as valid audit document? O a. Unable to decide as the information is not sufficient O b. No, it cannot be considered as valid audit document O c. Only the evidence received in hard form is valid o d. Yes, it can be considered as valid audit document

Answer 2

Question

Chapter 2, Problem 51FF

a.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:Whether or not the members’ description is sufficient to assess their qualification. Also, explain whether or not the number of meetings is sufficient to fulfill their responsibilities. Also, explain the additional information that might be required and the manner to obtain that information.

b.

To determine

Introduction: Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

The audit committee financial expert and whether the individual will truly be able to fulfill the assigned role. Also, state the reason that audit committee member shall have financial expertise.

c.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:Whether or not the compensation received by the members were adequate.

d.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:The weaknesses in the audit committee governance structure.

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Answer 3

Question

Chapter 2, Problem 51FF

a.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:Whether or not the members’ description is sufficient to assess their qualification. Also, explain whether or not the number of meetings is sufficient to fulfill their responsibilities. Also, explain the additional information that might be required and the manner to obtain that information.

b.

To determine

Introduction: Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

The audit committee financial expert and whether the individual will truly be able to fulfill the assigned role. Also, state the reason that audit committee member shall have financial expertise.

c.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:Whether or not the compensation received by the members were adequate.

d.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:The weaknesses in the audit committee governance structure.

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Answer 4

Question

Chapter 2, Problem 51FF

a.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:Whether or not the members’ description is sufficient to assess their qualification. Also, explain whether or not the number of meetings is sufficient to fulfill their responsibilities. Also, explain the additional information that might be required and the manner to obtain that information.

b.

To determine

Introduction: Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

The audit committee financial expert and whether the individual will truly be able to fulfill the assigned role. Also, state the reason that audit committee member shall have financial expertise.

c.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:Whether or not the compensation received by the members were adequate.

d.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:The weaknesses in the audit committee governance structure.

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Answer 5

Chapter 2, Problem 51FF

a.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:Whether or not the members’ description is sufficient to assess their qualification. Also, explain whether or not the number of meetings is sufficient to fulfill their responsibilities. Also, explain the additional information that might be required and the manner to obtain that information.

b.

To determine

Introduction: Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

The audit committee financial expert and whether the individual will truly be able to fulfill the assigned role. Also, state the reason that audit committee member shall have financial expertise.

c.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:Whether or not the compensation received by the members were adequate.

d.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:The weaknesses in the audit committee governance structure.

Answer 6

Chapter 2, Problem 51FF

a.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:Whether or not the members’ description is sufficient to assess their qualification. Also, explain whether or not the number of meetings is sufficient to fulfill their responsibilities. Also, explain the additional information that might be required and the manner to obtain that information.

Answer 7

Chapter 2, Problem 51FF

a.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:Whether or not the members’ description is sufficient to assess their qualification. Also, explain whether or not the number of meetings is sufficient to fulfill their responsibilities. Also, explain the additional information that might be required and the manner to obtain that information.

Answer 8

b.

To determine

Introduction: Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

The audit committee financial expert and whether the individual will truly be able to fulfill the assigned role. Also, state the reason that audit committee member shall have financial expertise.

Answer 9

b.

To determine

Introduction: Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

The audit committee financial expert and whether the individual will truly be able to fulfill the assigned role. Also, state the reason that audit committee member shall have financial expertise.

Answer 10

c.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:Whether or not the compensation received by the members were adequate.

Answer 11

c.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:Whether or not the compensation received by the members were adequate.

Answer 12

d.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:The weaknesses in the audit committee governance structure.

Answer 13

d.

To determine

Introduction:Audit committee is a sub-committee of board of directors which is responsible for providing an oversight to the financial reporting process. Audit committee acts as an intermediary between external auditors of the company and the management to resolve areas of conflict amongst them.

To explain:The weaknesses in the audit committee governance structure.

Answer 14

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Ch. 2 - The Great Salad Oil Swindle of 1963 is an asset...Ch. 2 - Prob. 2TFQ Ch. 2 - The three elements of the fraud triangle include...Ch. 2 - Prob. 4TFQ Ch. 2 - Prob. 5TFQ Ch. 2 - Prob. 6TFQ Ch. 2 - Prob. 7TFQ Ch. 2 - Prob. 8TFQ Ch. 2 - Prob. 9TFQ Ch. 2 - Prob. 10TFQ

Chapter 2 Solutions