You have been hired as an expert consultant by the board of directors of the EZ Consulting Company. You are working directly with Jane Woe, the chair of the audit committee. She has quietly asked you to investigate a shareholder's suspicion that the CEO and CFO have fraudulently inflated income in the most recent annual report.

You have decided to accept the engagement and your plan is to conduct a forensic audit of the revenue accounts. You have indicated that you will not give an opinion on the financial statements as a whole, but only give an opinion regarding possible fraud in the revenue accounts. You have insisted on this limiting provision because you do not want to subject your investigation to attestation standards.

Your investigation reveals several serious revenue irregularities. Large amounts of revenue were booked for work not yet done, and there were no provisions for bad debts despite serious questions about the collectability of fees earned, but not yet paid, by clients.

It is your personal opinion that the CEO and CFO knew exactly what they were doing in engaging in the irregularities. They are both experienced accountants with previous experience in public accounting. Further, it appears to you that their main reason for inflating revenues was to facilitate getting a large loan from a local bank.

You write your report and indicate that you found revenue irregularities inconsistent with generally accepted accounting principles. Further, these irregularities were made under the authority of both the CEO and CFO.

Jan Woe is very unhappy with your report because it never once uses the word "fraud." She tells you that she hired you to investigate possible financial statement fraud, and you owe her an answer to her question.

You respond that it is not your responsibility to determine guilt. That is for a trier of fact to decide. You can only comment on the facts as you found them.

She is still not happy. "I'm not asking you to find anyone guilty," she says. "I only want you to say that a fraud has been committed."

Your personal opinion is that a fraud was committed.

Required

Is there anything that you can say, or should say, that might indicate that a fraud has been committed? 

Could you say that the actions of the controller and CEO are consistent with a fraud scheme? 

Answer rating: 100% (QA)

As an expert consultant it is important to be clear and accurate in the language used in the report ... View the full answer