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Auditing

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Auditor Accountability
Some firms receive unqualified reports because of different errors and mistakes they
make during auditing which make them to provide wrong information to the different users of
financial statements. As a result of misleading the users, the firm may face several consequences.
An example of a company which received unqualified reports is WorldCom Corporation. More
than $3.3 billion was realized from the accounting errors and this made the accounting scandals
in the long distance phone firm to double. The firm inflated its assets by more than 11billion. It
made investors to run away from the corporation which amounted to a loss of around $billion.
More than 30000 jobs were also lost as a result of the scandal. The main player in this scandal
was the C.E.O Bernie Ebbers. The C.E.O underreported the line costs of the firm by capitalizing
them rather than recording them as expenses. He also made fake accounting entries which made
the revenues to be inflated. He was caught when the internal auditing department of WorldCom
discovered a fraud of more than $3.8billion. As a result of this, the C.E.O was sentenced for
committing fraud, the chief finance officer was fired and the firm was also filed for bankruptcy.
As a result of this scandal, the Sarbanes Oxley Act was established which brought in place
different regulations which govern businesses.
1. Departures from the generally accepted accounting standards might come up usually when
financial statements of a public traded are being audited by a financial firm. Principles may come
up when a CPA firm is auditing the financial statements of a publicly owned company. the
auditor usually offers unqualified reports if according to him, the departure are immaterial and
hence, they will not have a great impact on the decision outcomes of different financial statement
users. On the other hand, when the impact of a certain departure is great and material and
therefore it has effects on the financial statements fairness, the auditor is required to give a

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qualified report. He has to give an opinion which is appropriate in the report he prepares. An
example of a departure here is restriction of the auditor’s scope which makes collection of
adequate evidence for the audit process inadequate. Therefore, the auditor may issue an opinion
which is qualified with more explanation about the case in a disclaimer or in an additional
paragraph. Also, the other departure from the GAAP is the situation when the author is actually
aware that the financial statements are misleading since they were not prepared in accordance to
the Generally Accepted Accounting principles like presenting consolidated financial statements
in situations like those of individual subsidiary corporations or the opposite where GAAP
doesn’t permit this. The auditor may therefore, give his qualified opinion ion an additional
paragraph, using the phrase except for, give an adverse report or using a disclaimer. In the
instance of a justified departure from GAAP, like when there is lack of independence for the
auditor, the auditor must issue a disclaimer regardless of materiality. If the CPA firm is not
independent and the customer doesn’t give all records requested by the firm or the auditor has
suspicion that some information is being hidden, it will issue an unqualified report. The Public
Companies Accounting Oversight Boards (PCAOB) has to levy some sanctions against a
particular CPA firm if it issues unqualified reports. Some of these sanctions are fining the firms,
barring the CPA firms from practicing as well as withdrawing their licenses and certificates.
2. The professional conduct code provides both specific enforceable regulations and general
standards on the conduct of accountants who are CPAs as well as the non CPAs. The
professional conduct code comprises of four parts on the conduct of CPAs and they include;
ethical rulings, rules of conducts, principles and interpretation of the conduct rules. All
accountants being the non CPAs and the CPAs should comply with specific basic principles liker
objectivity, integrity, due care and professional competence, professional behavior,

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Auditor Accountability Some firms receive unqualified reports because of different errors and mistakes they make during auditing which make them to provide wrong information to the different users of financial statements. As a result of misleading the users, the firm may face several consequences. An example of a company which received unqualified reports is WorldCom Corporation. More than $3.3 billion was realized from the accounting errors and this made the accounting scandals in the long distance phone firm to double. The firm inflated its assets by more than 11billion. It made investors to run away from the corporation which amounted to a loss of around $billion. More than 30000 jobs were also lost as a result of the scandal. The main player in this scandal was the C.E.O Bernie Ebbers. The C.E.O underreported the line costs of the firm by capitalizing them rather than recording them as expenses. He also made fake accounting entries which made the revenues to be inflated. He was caught when the internal auditing department of WorldCom discovered a fraud of more than $3.8billion. As a result of this, the C.E.O was sentenced for committing fraud, the chief finance officer was fire ...
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