Good Example Of Case Study On Auditing
General and Business Risk
Additional General and Business Risk
The firm is actively engaged in acquiring other firms in order to consolidate its competitive advantage and market control. As such:
The firm is keen to ensure that it does not experience income surprises that characterises acquisitions where the acquired firm does not add the expected value to the acquiring firm.
The firm is required to ensure that the goodwill acquired is valued effectively and the deferred taxes are effectively disclosed as a requirement for tax purposes and financial reporting.
The firm is under pressure to become a market leader. Therefore, it is investing heavily in research and development. The desire to be the market leader exposes the firm to:
The risk of developing products that turns out to be unworkable or commercially unviable due to racing against time with the aim of staying ahead of competition
The risk of having to try out untested ideas with little practical guarantee that they will work
Additional Financial Accounting or Reporting risks
According to the SAS no 59, the auditor is required to evaluate the going concern assumptions.
In some cases, it is possible to have instances where the management is mitigating information contrary to the going concern concept and assumptions. The presence of such information will be materially affecting the financial statements that are being examined. As a result, the auditor is expected to factor that in determining the evidence for the engagement. The implication here is that the auditor has to effectively ascertain that the firm has the ability to carry on its operation for at least the next one year thus the values provided will be in accordance to the going concern.
SEC is reviewing the firm financial statement to examine the firm accounting for research and development in progress.
Inconsistence in accounting for research and development costs for R&D in progress makes this accounting aspect warrant additional audit attention.
The firm is actively engaged in acquisitions
New accounting standard increases potential for post close earning volatility affecting the acquisition accounting estimates being significantly different compared to the estimates that were recorded at transaction close.
Millichamp, A. (2002). Auditing (8th ed.). London: Continuum.
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