Discuss auditors responsibilities for assessing fraud risk

Discussion Questions

1. Defend the current GAAP rules for pension accounting reporting on the balance sheet and the income statement. Recommend a change you would make to the current pension accounting to more accurately reflect the future obligations of a company.

2. "Will it cost your company your company? Ready for one of the most difficult challenges ever to confront corporate America? One that is estimated to cost up to $400 billion. New FASB regulations will force companies to measure and post as a debit their health expense obligation to current and future retirees.... We'll help you minimize the financial impact of these regulations and still enable you to remain responsive to the benefit needs of employees." (Excerpts from an advertisement by CIGNA, a large insurance company.)

"Forget about retiring with all-expenses-paid health care from your employer. About 65% of U.S. companies have reduced benefits. Some have asked retirees to pay more of the costs, while others have eliminated the plans altogether. Blame soaring medical expenses and a new accounting rule that requires companies to post long-term retiree medical benefits as liabilities on their balance sheets." (Adapted from BusinessWeek, August 24, 1992, p. 39.)

Evaluate the content of the advertisement and explain why companies may have reduced benefits when they adopted new GAAP.

3. Create a scenario where the external auditors detect that there is fraud. Discuss the auditors' responsibilities for assessing fraud risk. What are the procedures used to detect material misstatements due to fraud?

Discuss recommendations to management for reducing fraud.

4. Compare and contrast the different inventory cost flow assumptions. Explain the consequences that result from the use of alternative inventory cost flow assumptions.

5. Robin Smith is considering buying shares in Mah Company. The company has reported an increase in net income this year. On careful reading of the notes to the financial statements, Robin learns that the company had a LIFO liquidation this year. Robin understands what caused the liquidation but has asked you for advice about how to interpret it.

Based on the information contained in Case C7-6: Interpretation of GAAP and Ethical Issues, could a LIFO liquidation profit create ethical issues? Defend your position.

The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.

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Accounting Basics: Discuss auditors responsibilities for assessing fraud risk
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