The ‘tone-at-the-top” during the fraud period was fairly unethical, however, the whole company was not completely unethical.
The leaders of the specific business units may have had a higher ethical standpoint because the senior management was cautious and thought that they would question the validity of the fake customers and invoices. The senior management would constantly override the accounting systems with the use of the “superset” login identification.These “super-user” login identifications masked the existence of the fake invoices from the leaders of he business units The first deficiency is that the engagement team relied on the senior management to send the confirmation requests to the bank. o The auditors should never relinquish control of their testing to the client.
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o They must always maintain complete control over their testing The second deficiency is that the engagement team received confirmations from the senior management and they relied of those confirmations as audit evidence o Confirmations are meant to be a third-party representation of the amounts in the account.Auditors should only rely on confirmations sent out by them and received directly from the third party o Even confirmations that were from third parties that were first sent to the client are significantly lower quality evidence. The third deficiency is that the engagement team discovered significant discrepancies between the confirmations received directly from the third party banks and the confirmations received from the client. o The auditors should have done further testing should have been performed to discover the reason behind the differences.However, the auditors just accepted the management’s confirmations as correct because they believed the senior management was honest.
o It is the auditor’s responsibility to exercise due care and professional skepticism. o By not performing further testing, the auditors did not exercise due care. o By not questioning the management’s confirmation, they did not show professional skepticism. The last deficiency is that the engagement team did not take any action even after another partner from PWS Network Firm outside of India criticized their irking papers. The comments from the outside partner were received before the release of the 2008 audit report. o The audit team should have adjusted their testing based on the comments especially since it indicated that their testing was us bestially deficient What procedures should take place when an audit over internal controls indicates that there may be significant deficiencies?