comment on the post below do you agree or not and why?

NextCard case is an example of an audit failure to properly assess the company's risk. The investors and other stakeholders depend on an auditor's trust and ability to evaluate the soundness of the company's financials independently. In this case, we learned what went wrong and the steps to prevent this from happening again. AU Section 311 identifies the regulations and standards, and among the listed requirements, the audit firm has to gain knowledge and understanding of the client's business operations (https://pcaobus.org/oversight/standards/archived-standards/details/AU311(Links to an external site.)). Furthermore, according to the PCAOB, the auditor must understand the entity and its environment, including its internal control, organization, operating characteristics, and capital structure. This process allows the auditing team to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and design the nature, timing, and extent of further audit procedures. The auditor should also consider concerns concerning the industry in which the entity operates, such as economic conditions, government regulations, and technological changes. Based on the standard requirement, the auditor must evaluate the soundness of a client's business model to avoid material misstatements. These standards further allow the audit to understand the entity's ability to continue to operate and more accurately identify the acceptable risks. With knowledge and understanding of the client's business, an audit can more successfully recognize the concerns.

In the NextCard case, the auditors failed to evaluate the accounting estimates properly. A few red flags required more investigation on the part of the auditors. The fact that NextCard was growing so fast with the strategy of loaning out over one billion dollars should raise some concerns. After NextCard continued to publish losses, the circumstances brought attention to the allowance for doubtful accounts. With these risks present, it should have given the auditors an implication of fraudulent actions. Additionally, auditors should have done more examination on the part of the accounts receivable. This would help accurately calculate the allowance for doubtful accounts. They should also have collected more data about revenue since the company has yet to post a profitable quarter. If the audits had paid more attention to some of the concerns and risks, they would have seen that NextCard was acting illegally by understating its losses. The auditors' lack of tests performed and insufficient evidence failed to fulfill the professional procedures. The audit team did not gather evidence that was sufficient or appropriate for the justification of their opinion. Other concerns contributing to the audit failures include the inexperienced auditing team. Flanagan only had a few years of experience and was made the senior auditor. Also, there appears to be little to no supervision during the audit process.

The auditing firm is responsible for thoroughly examining the concerns and red flags to ensure the accurate representation of the company's financials. The auditors need to base their opinion on the evidence they examine during the audit. Therefore, to ensure they've collected an adequate amount of evidence, auditors should rate the riskiness of the entity. The higher risk, the more evidence the auditing team should collect before issuing an opinion. The NextCard auditing team clearly failed to identify and obtain the crucial evidence.