Don Spark recently joined the public accounting firm of Watts & Ampage. He quickly established a reputation
Question:
Don Spark recently joined the public accounting firm of Watts & Ampage. He quickly established a reputation for thoroughness and a steadfast dedication to following prescribed auditing procedures to the letter. On his third audit for the firm, Spark examined the underlying documentation of 200 disbursements as a test of purchasing, receiving, vouchers payable and cash disbursement procedures. In the process he found 12 disbursements for the purchase of materials with no receiving reports in the documentation. He noted the exceptions in his working papers and called them to the attention of the partner in charge of the audit. Relying on prior experience with the client, the partner disregarded Spark's comments and nothing further was done about the exceptions.
Subsequently, it was learned that one of the client's purchasing agents and a member of its accounting department were engaged in a fraudulent scheme whereby they diverted the receipt of materials to a public warehouse while sending the invoices to the client. By the time management discovered the fraud, the conspirators had obtained approximately $370 000, of which only $50 000 could be recovered.
REQUIRED
Discuss the legal implications for Watts & Ampage, and their liabilities, as a result of the facts described above.
Step by Step Answer:
Auditing Assurance Services and Ethics in Australia an Integrated Approach
ISBN: 978-1442539365
9th edition
Authors: Alvin A Arens, Peter J. Best, Greg Shailer, Brenton Fiedler