In this assignment three parts and several topics based on accounting of Quintis Ltd will be introduced. As per Part a few answer will be introduced by the help of a video called false assurance and respectively Quintus financial collapse will explained in following Part B. This following article is a research based assignment which has three parts. In following Part C, a brief conclusion about whole learning based on Quintis’s accounting and financial collapse will be explained as per this particular research based assignment. Brief discussion about Key Audit matter (KAM) will be introduced in order to maintain auditor duties and responsibilities.
Summarising key issue
False Assurance can be considered to be a superior quality film that can be utilized as a tool for training that, by means of discussion or else discussion-associated practices, can augment knowledge. This not only includes a wide range of teams particularly in-house, counting teams of finance as well as internal audit, but also that of board members. Particularly, this video drama was formulated by the “Institute of Chartered Accountants England and Wales” and intends to assist in thought-generating discussions regarding the way accountants, assessors and company directors need to act when encountered with complicated circumstances. In particular, this film takes into account the account of two unstable years in of a fictitious business firm titled ‘D-Merton’, and divulges the way activities of the firm’s Executive Directors brought the same to its knees.
Essentially, there was inadequate vigilance and guts of Board of Directors of the firm. Also, there was also failure to recognize and inspect red flag concerns by external assessors. It can be said that the film is divided into four different segments. Essentially, at the closing of each segment, the respondents will be offered the opportunity to replicate and interacting opinions and debate regarding what they could have carried out in a better way instead, under similar state of affairs. Essentially, the issues identified in the film are both timely as well as pertinent to reality of Cyprus and can deliver a foundation for discussion regarding solutions and superior practices between ACI facilitators as well as the partakers of KPMG Cyprus.
Identifying three fraud symptoms
Fraud symptoms can be classified into analytical symptoms, accounting otherwise documentation symptoms, symptoms of lifestyle, tips with complaints, symptoms of control together with behavioural along with verbal symptoms.
Analytical Symptoms: Revenue (high), low sales discounts, low sales returns, expense of bad debt, high accounts receivable, low allowance for bad debt, low cash in comparison to reported sales revenue (Purda &Skillicorn, 2015)
Documentary Symptoms: Documents missing in the cycle of revenue, ledgers associated to revenue not balancing (for example sales as well as receipts of cash), considerable bank items as well as other reconciliations, unapproved or else unsupported balances associated to revenue
Symptoms of control: Overriding important internal control actions linked to revenue cycle, weaknesses present in the cut off procedures otherwise other important accounting procedures.
The audit undertaken by TYSL accountants need to be as per ISA 240 indicates that accountabilities of auditors associating to fraud in process of audit of financial assertions. According to regulations stipulated under “ASA 240.5/ISA 240.5”, essentially the TYSL Accountants have accountability to sketch an audit to accomplish sensible assurance in order to ensure that fraud does not happen. Also, the impact of the scam has the need to be presented in the financial assertions. Then there exists no material misstatement particularly in financial statements owing to error otherwise fraud. This shows that there is need to present extensive investigation with the administration with regard to fraud. At the time of acquiring rational assurance it can be said that TYSL Accountants are accountable to enhance skill and maintain scepticism during the course of audit (referring to directives of “ASA 200.15/ISA200.15”) (Kachelmeier et al., 2017). Particular, it is also important to identify that procedures of audit that are effectual in identifying error might not be effectual in pointing out fraud. In order to make sure that overall engagement team is conscious of accountabilities and fraud risks as well as error. Again, ISAs also states that discussion needs to be carried out within team and for diverse members who are not in attendance at the specific meeting. The audit partner of D-Merton’s has the necessity to ascertain different matters that should be communicated properly.
Key issues of Qunton’s Financial collapse
The key issues of Quintis Ltd financial collapse include:
- The company was going to alternative sell sandalwood by further evaluation and restructuring. There was not a proper agreement in place between other investors and existing shareholders regarding the selling agreement of shareholders
- The company mislead investors by reporting a fictitious shipment of USD 25 million to an unknown Chinese company, This encouraged investors to invest on the company after hearing about this news. However on investigation there was no evidence of such shipment being made. Even the Chinese company was a small firm who had no means to perform the shipment.
- Ponzi scheme- The company made a claim that it would pay dividend to investors starting from two years of initial investment. This claim was false. There was no scope of such earning that amount of dividend because the dividend will accrue only after 15 years, when the harvesting of sandalwood is done. This is a Ponzi scheme whereby the company makes promises to pay investors the money from other investors.
Summarise three potential fraud symptoms
The fraud symptoms include:
- Accounting anomalies- The Company made incorrect valuation of sandalwood trees and reported profits from non cash activities.
- Analytical anomalies- the company announced that it will declared dividend after two years. However there was no scope of such dividend. This was a major red flag that the company should have uncovered.
- Internal control weakness- The Company did not undergo proper internal control measures. There was a lack of proper internal controls. Otherwise the misleading would have been uncovered.
The relevant authorities have the power to persecute the individuals that are responsible for committing the fraud. There can be a civil case or a criminal prosecution regarding the occurrence of that fraud. The authorities can make an arrest or enforce court orders or file an injunction. Since the company wilfully made the fraud, there is bound to be evidence that ties this company to the financial crisis. The auditor can find evidence of such matters in the correspondence emails between directors and the chairman’s emails.
Reviewing disclosure of Key Audit Matters
According to ASA 701, key audit matters are those matters that are most significant in the auditor’s report. The auditor is required to describe each key audit matter and form an opinion thereon .It needs to describe and disclose each key audit matter in the auditor’s report. It is required to assess the responsibility of auditors. Some of the key audit matters include the improper valuation of biological assets , impairment evidences in carrying value of non-current assets and non-recognition of revenues for establishment fees. These disclosures have not greatly benefitted shareholders . The company made improper disclosures that caused significant losses to the shareholders. Providing adequate disclosures will provide a better corporate governance, better auditing and better financial reporting(Purda & Skillicorn 2015).
In Quintis, Ernst & Young disclose their audit report by Key audit matter in 2017. Such annual audit report based on the model of key audit matter is not able to create benefits criteria for the shareholders.According to Bédard,Gonthier-Besacier&Schatt, (2014),proper key audit matter report on annual audit report is going to be more significant and proper. Therefore specific key audit matter report is described in order to improve the fellow audit report. One significant changes are introduced towards Auditors own report standards to anInternational standards auditing report. Key Audit Matters (KAM) is associated in determining some following auditor’s report in accounting, which are-
- According key audit matters, auditors are required to understand or identify the respective areas with high chance towards high risk management.
- In the financial statement, auditions significant judgements are needed in order to identifying the following high risk based areas.
In this report of key matter audit, each description of auditor’s report is based on a relevant reference in order to relative disclosure. This reference are proposed in order to understanding the importance of this key audit matters in respective audit report and the whole process and following requirements of this key audit matter report are need to be described.
Describing opinion on auditor’s duties
The auditor was negligent in carrying out its duties. No appropriate audit evidence was done to conduct the audit. An auditor is expected to carry out its duties with skill and care.In this case the auditor was professionally negligent in carrying out its duties because the audit team could not uncover material misstatements that were abundant in this company. The auditor did not uncover any material misstatement in 2016. It is the responsibility of the auditor to form an unqualified opinion on the financial statements. This opinion should be independent and impartial . The objective of the auditor is to make sure that the financial statements of a company reflect a true and fair view of the financial statements
After going through the whole proposed audit report of the particular company, several duties responsibilities of auditors are not maintained. According toCarcello, Hermanson& Ye(2011), in order to create effective management, auditor’s responsibilities are required. As per the opinion on audit report several major responsibilities and duties are required in the case of this particular company’s audit report and those duties and liabilities are followed-
- It is auditor’s responsibilities to kept accounting section carefully and faithfully of following organisation.
- As per previously proposed auditor report, applied regulation and framed procedures are not able to enhance sufficient report in order to overview effective assessment. Proper information and exact allocated revenue are sufficient for the security based on effective assessment.
- Expansion of all money and account charges is liable to create aim of the purpose which is based on a provision set by the government. It is auditor's duty to confirm that payment of public money has been incurred without waste and extravagance.
The audit undertaken by the company indicates that the auditing procedures have not been conducted in a fair manner. Although there is no material misstatement in the audit, the scam indicates that the audit has not been done in an appropriate manner. Hence it is very important to conduct the audit in a fair and responsible manner so that financial misstatements of this nature can be detected early. In both cases there is evidence of financial scam and the auditor was negligent in carrying out its duties
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