Audits

Evaluating a used car as an illustration of the differences between compilation, review, and audit

Leave a Comment / Audits, Compilations & reviews /

I have a post at my other blog, Nonprofit Update which provides an analogy to illustrate the differences between the levels of attestation services provided by CPAs:

Evaluating a used car as an illustration of the differences between compilation, review, and audit

The analogy compares three different ways to figure out the quality of a car. I suggest each of those ways is similar to a level of service. Here’s the conclusion:

  • Look at the car from across the street – very low cost for low quality information – compilation
  • Look around inside in the car and drive it around the block – moderate cost for better information – review
  • Have a mechanic work it over – highest cost in terms of time and money but the best information on the quality of the car – audit

Check out the full post for more details on the analogy.

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Big firms rebranding multiple names down to one

2 Comments / Audits /

David Albrecht has background on the trend of the big firms reducing the number of names in the firm name down to one or a series of letters.  Also gives some reasons why.

CPA Firm Branding and McGladrey LLP

Several reasons:  appearance, ease of brand management, looks more ‘corporate’. 

Good overview for those of us who don’t worry about the image of a zillion dollar firm.

Big firms rebranding multiple names down to one Read More »

Q: Why are corruption and bribery frauds so difficult to discover?

Leave a Comment / Audits, Fraud /

A: Because all the documents are outside the organization being defrauded.

When it comes to corruption and bribery, it only takes a little planning for a fraudster to keep all the papers that contain any trace of a fraud outside the organization.  A minimal amount of planning will mean there is no paper inside an organization that contains a hint of a problem.

I’ve discussed this issue using the example of an alleged fraud in the city next to where I live. The alleged part of the story is slowly turning to fact with one participant, the mayor, entering a plea agreement.

Now think about auditing the city.  All the pieces of paper that show any hint of the fraud are outside the city hall.  How would the city’s auditor find that?

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Q: Why are corruption and bribery frauds so difficult to discover?Read More »

Q: Why are corruption and bribery frauds so difficult to discover? Read More »

Guilty plea in corruption trial mentioned a year ago

Leave a Comment / Audits, Fraud /

In March 2011 I discussed a corruption case in the city next door to where I live.

The local newspaper reports that the mayor has pled guilty to accepting a $5,000 bribe from a local business.  From the Daily Bulletin: Ex-Upland mayor pleads guilty, the very short version of the story:

{The mayor} was accused of conspiracy, extortion and bribery offenses that led the business owners to pay $45,000 in bribes.

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Guilty plea in corruption trial mentioned a year agoRead More »

Guilty plea in corruption trial mentioned a year ago Read More »

Range of U.S., Chinese, and Japanese regulators’ responses to fraud in today’s news – Olympus and Longtop

Leave a Comment / Accounting, Audits, Fraud /

Sometimes you get fun results when you look at two news articles side by side. Let’s look at the responses of securities regulators in the US, China, and Japan.  Hat tip to Going Concern for highlighting the articles.

Olympus fine

Japan’s securities market regulator proposed a fine of $2.5M against Olympus for conducting a $1.7 billion financial fraud that was spread over 13 years – Japan market watchdog recommends $2.5 million fine for Olympus.

Let’s put that proposed fine into perspective. All amounts will be in US dollars.

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Range of U.S., Chinese, and Japanese regulators’ responses to fraud in today’s news – Olympus and LongtopRead More »

Range of U.S., Chinese, and Japanese regulators’ responses to fraud in today’s news – Olympus and Longtop Read More »

Panel clears E&Y over Olympus auditing – far less to the report than meets the eye

Leave a Comment / Accounting, Audits, Fraud /

The Wall Street Journal headline says Panel Clears Ernst & Young in Olympus Probe.

Cool update on the investigation, huh? An official panel looks at E&Y’s role and concludes their auditing was okay.  They have no legal liability.

I was quite interested in the article.  Then found out the details.

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Panel clears E&Y over Olympus auditing – far less to the report than meets the eyeRead More »

Panel clears E&Y over Olympus auditing – far less to the report than meets the eye Read More »

To what purpose did Arthur Andersen die? Part 3

2 Comments / Audits /

First post in this series discussed an editorial in the Chicago Tribune concluding that Big 5 accounting firm Andersen died in vain.

Second post provides background on the large number of audit failures that surrounded Andersen.  The editorial provides background on the poor ethical environment of the firm.

David Albrecht, in his post 10 Years Later – Did Andersen Die in Vain?, has a very different answer to the question.

There was a purpose in the demise of Andersen.  Punishment

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To what purpose did Arthur Andersen die? Part 3Read More »

To what purpose did Arthur Andersen die? Part 3 Read More »

To what purpose did Arthur Andersen die? Part 2

3 Comments / Audits, Books you might enjoy /

Previous post discussed a March 14, 2012 editorial in the Chicago Tribune which ponders what greater cause may have existed behind the 2002 collapse of Big 5 accounting firm Arthur Andersen. The editorial concluded that Andersen died in vain.

Methinks the editorial’s content argues against the editorial’s conclusion.

Let’s look at the pattern of behavior

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To what purpose did Arthur Andersen die? Part 2Read More »

To what purpose did Arthur Andersen die? Part 2 Read More »

To what purpose did Arthur Andersen die? Part 1

4 Comments / Audits /

In a March 14, 2012 editorial, the Chicago Tribune ponders what greater cause may have existed behind the 2002 collapse of Big 5 accounting firm Arthur Andersen.

Their conclusion? Andersen died in vain.

David Albrecht, in his post 10 Years Later – Did Andersen Die in Vain?, reaches a very different conclusion. More on that in part 3 of this series. If this post has already caught your interest, you’ll enjoy reading his post now.

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To what purpose did Arthur Andersen die? Part 1Read More »

To what purpose did Arthur Andersen die? Part 1 Read More »

Self-deception – a major obstacle to thinking clearly

Leave a Comment / Audits, Pondering /

I am reading through a book that outlines ways our thinking processes will sometimes lead us to decisions that are actually wrong.

While pondering those ideas, I realized there is another severe flaw in the way we humans think that is described in the Bible.

The book is Thinking, Fast and Slow by Daniel Kahneman.  My posts on the book applying it to the audit context start here.

The problem is worse than just incorrectly thinking fast

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Self-deception – a major obstacle to thinking clearlyRead More »

Self-deception – a major obstacle to thinking clearly Read More »

If auditors won’t audit, mandatory rotation won’t help. Part 5

Leave a Comment / Audits /

This post wraps up a long discussion of the impact on audit judgment from the halo effect. You can read parts 1, 2, 3, and 4. 

In case you haven’t read the previous posts, I think mandatory auditor rotation is a lousy idea that won’t have any impact on audit quality.

The halo effect, though, is something real and we auditors need to know about it.

This series of posts is reacting to Thinking, Fast and Slow by Daniel Kahneman.  My pondering was prompted by a post from Tom Selling that I discussed here.

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If auditors won’t audit, mandatory rotation won’t help. Part 5Read More »

If auditors won’t audit, mandatory rotation won’t help. Part 5 Read More »

If auditors won’t audit, mandatory rotation won’t help. Part 4

2 Comments / Audits /

I started a discussion here about whether the halo effect on auditors is so strong that mandatory auditor rotation is needed to get good audits. Continued in part 2 and part 3.

Counter pressures

There are a lot of counter pressures to encourage auditors to be diligent and do a good job.  Here’s a short list: …

If auditors won’t audit, mandatory rotation won’t help. Part 4Read More »

If auditors won’t audit, mandatory rotation won’t help. Part 4 Read More »

If auditors won’t audit, mandatory rotation won’t help. Part 3

3 Comments / Audits /

I have a discussion here and here about whether the halo effect on auditors is so strong that mandatory auditor rotation is needed to get good audits.

How the design of audit helps counter the halo effect

After reading much of Mr. Kahneman’s book, I would suggest that an audit is designed to counter the System 1 / System 2 biases.

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If auditors won’t audit, mandatory rotation won’t help. Part 3Read More »

If auditors won’t audit, mandatory rotation won’t help. Part 3 Read More »

If auditors won’t audit, mandatory rotation won’t help. Part 2

4 Comments / Audits /

I started a discussion here about whether the halo effect on auditors is so strong that mandatory auditor rotation is needed to get good audits.

Let’s take two side trips. First, to look at one other way we can make bad decisions.  Second, I’ll ponder how the halo effect could come into play in other areas.

Another danger – making decisions when hungry

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If auditors won’t audit, mandatory rotation won’t help. Part 2Read More »

If auditors won’t audit, mandatory rotation won’t help. Part 2 Read More »