Knottyville Country Club

Tutor: None Selected Time limit: 1 Day

The Knottyville Country Clud wants to construct an $8 million addition to the clubhouse. They have approached ABC Bank. The bank required the Club to get an external audit done by a CPA firm for years 2005 and 2006. You have been hired as the auditor. Hint: Read SAS No. 99 first.

A. List the risk factors(red flags) for asset misaapropiation that are present in the case.

B. What audit procedures would you perform to make sure that there was no embezzelment?

Jul 6th, 2015

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Being alert to warning signs is one way to be proactive and identify fraudulent activity. Some of the most common red flags at the corporate level include:

  • significant change in reported income or earnings;

  • unreported business income;

  • inappropriate accounting methods;

  • investments with related parties;

  • investments in unrelated assets and projects;

  • lack of thorough employee screening;

  • lack of separation of duties (purchasing, inventory, accounts payable, bank reconciliation, etc.);

  • employees/partners with lavish spending habits (i.e., increase in trips/vacations – how are they financed); and

  • employees/partners with financial difficulties and pressure.

Audit Procedures can include 





reperformance, and 

analytical procedures.

Please let me know if you need any clarification. I'm always happy to answer your questions.
Jul 6th, 2015

Jul 6th, 2015
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