Kay & Lee LLP was retained as the auditor for Holligan Industries to audit the financial statements
Question:
The auditors asserted that there was no way for them to know that the client included in the inventory account $1 million of merchandise in transit to a customer on December 31, 2015. The shipping terms were unclear so the auditors accepted management’s representations in that regard (FOB Destination). As for the receivables, the auditors claimed the client falsified confirmations by sending them to a post office address, retrieving them, and then confirming the stated balances.
3. Critically evaluate the auditors’ statements about the inventory and receivables with respect to generally accepted auditing standards and the firm’s ethical responsibilities.
Auditing and Assurance Services
ISBN: 978-0077862343
6th edition
Authors: Timothy Louwers, Robert Ramsay, David Sinason, Jerry Straws