Briefly indicate:
(i) How the defalcation would likely have been detected by the auditor. Assuming the
amounts are material, should most auditors have detected the defalcation? Explain.
(ii) What type of control procedures would have been effective in preventing or detecting
the defalcation?
End of Mini-group presentation
2. Presentation Topic 6
Part I:
Refer to Appendix I: The SECs case against California Micro Devices: A lesson in using
professional skepticism and obtaining sufficient appropriate evidence (Issues in Accounting
Education, 2011, Vol 26 (1))
Required:
a) The SEC concluded that Michael and Brian engaged in improper professional conduct
as a result of their reckless failure to comply with professional standards. Explain the
basis for SECs conclusion. Organize your response according to the three specific
areas of the audit discussed in the case namely, write-off of accounts receivable,
confirmation of accounts receivable, and sales returns and allowances (base your
answers on the Singapore Standards on Auditing).
b) Explain the challenges in using financial information from previous periods in
performing trend analysis (reviewing the changes in an account balance over time) in
this audit.
c) The auditors work papers were deficient in several respects. Describe the specific
deficiencies with the work papers in this audit.
d) Describe the conditions that existed during this audit that were indicative of the risk of
material misstatement due to fraud.
e) Did the auditors respond appropriately to the assessed risk of material misstatement
due to fraud? Use specific examples from the case to explain your answer.
Part II:
Based on one or more recent media articles (of not more than 12 months old), describe a reallife situation where a company suffered a financial loss or other negative consequences due to
fraudulent activity. Discuss whether the external auditor could have discovered the fraud.
Include a copy of the media article(s) in your submission.
End of presentation