You are an auditor employed by Nicholas & Williams Chartered Accountants. One day when you were sitting
Question:
You are an auditor employed by Nicholas & Williams Chartered Accountants. One day when you were sitting in your office, a partner in the firm asked to see you to discuss a special assignment he wanted you to conduct for Smart Controls (Smart), a large, successful manufacturer of electronic components used for smart phones. While Smart is not a financial statement audit client, they have hired your firm over the years to perform various consulting engagements. his particular engagement consists of a review of the company’s internal controls over the purchasing, storage, and issuance of special raw materials inventory which consists primarily of high-cost electronic components.
The partner went on to tell you, “Smart Controls has been experiencing some problems in the factory lately and the board of directors has asked us to verify whether their current procedures are adequate. hey have had some pretty significant write-offs when some expensive electronic components have gone missing. he board members are concerned about this situation and have asked us to examine the supply procedures and identify possible causes of the problems, specifically for their special raw materials inventory. hey mentioned that their external auditor had never expressed any qualifications on the company’s financial statements or mentioned any deficiencies in their letter to management. However, in light of the missing materials, I don’t believe that there aren’t any. I would like you to identify the deficiencies and provide recommended improvements for each. I have told the Controller that you will be there later today to meet with him and get more information regarding the procedures in place.”
You have also obtained a copy of the inventory policies and procedures from him to assist in your assignment (Exhibit 1). Later that day, you meet with the Controller to discuss the controls over the special raw materials inventory (Exhibit 2)
Forensic Accounting and Fraud Examination
ISBN: 978-0078136665
2nd edition
Authors: William Hopwood, george young, Jay Leiner