Case study: PTL Club The crashing of Leventhol and Andersen started at the time of economic recession.
When a big firm is declared bankrupt, it is usually put into receivership. The factors that could have led to its collapse include economic downturn, massive workforce that took the better part of the revenues and impropriety of funds made for the project. Such factors can lead to close down of any firm. The merger between the Leventhol and Andersen and Lenventhol Horwath was not better option.
The group would have studied the company before coming up the partnership. The past and the history of the company are essential in establishing the success of the merger. On this particular merger, the Lenventhol and Horworth were adversely affected by the economic recession and were due to be declared bankrupt. This could place the company under receivership. The merger was more of saving the collapsing company rather that to improve performance through synergy (Russell, 2013 p. 45). The audit report is one imperative financial tool that tells the efficiency with which company spends its money and resources.
It is a tool that is used to unearth fraud and with the independent opinion from the auditor, the shareholders and stakeholder can be sure of the security of their investment in the company. The future of the company can only be known to hold through the auditor. Concealing the truth is a high risk in the investment of the shareholders and the stakeholders and hence not allowed for giving a misstatement. There was already set and advertised limit on the sale of membership on the sale of the membership, and it should be classified as the subsequent event.
However, there are circumstances where it cannot be classified as the subsequent event. Such situation includes duel-dated report, which captures the events concurrently. It also depends on the examining body for the responsibility where auditing standard classifies it as the subsequent event while the judiciary system may not have the same viewpoint. A balance sheet only deals with the moment in time but does not tell the previous history of financial transaction.
This would have given the auditing firm a narrow view of the company without revealing the other financial malpractice and improprieties (Russell, 2013 p. 45). It is within their obligation for them to know the sale limit on a lifetime membership. The knowledge of should be on the report that was prepared by Deloitte auditing firm that was criticized for, not bringing out that aspect. After knowing, they could have taken the membership within the set limit thus reducing the risks that they were letter taken through.
All the same, they can use the error to battle their loss in the law courts. Most of the auditing analysts assert that high-risk client usually poses a low auditing risk. Low auditing risk is always of the advantage to the firm that audit client. There are risks that can injure the reputation of the auditing firm if the risks are more on the auditing firm. This injury includes adverse publicity, professional practice litigation. It is for this reason that auditors have an affiliation with high-risk client that reduce exposure to high audit risk (Rittenberg & Larry, 2012 pg.
163) They could have used Operating expense transactions that check on the relationship[s that involve income statement accounts, which tend in most of the cases to be predictable than relationship that involve only the balance sheet accounts. The rationale for this option is that income presents the picture of the transaction over a protracted period while balance sheet is of a moment of time. For this reason, balance sheet is not appropriate for a firm that has been in operation for long (Rittenberg & Larry, 2012 pg.
168) Being part of the client team especially without their expectation is good means of establishing facts about the firm malpractice. Independence of the auditor results in leaving a lot of the contradiction that the client teams may cause when expressive information is given and compared with other evidences (Pickett, 2013 p. 344). The auditors could have approached the documents by identifying justifiable explanations that are reasonable only for the unexpected differences in sharing with the client. By this approach, management helps the auditor in assessing if the explanation is consistent with the finding.
The management explanation should be used in collaboration with other evidence. This will help unravel a lot of information than allowing the management to prepare for the answers. The auditors are not the final deciders of whether a firm is to be tax exempt. They only assist in ensuring that the firm has met the requirement for being tax exempt. It is then the role of the revenue authority to decide if the application for being tax exempt is duly met.
The very revenue authority will grant tax exemption or deny. The audits ethics include integrity, confidentiality, objectivity, and competency. No component of the code ethic that was breached by preparing the checks since the auditing company was pure objective to its work (Pickett, 2013 p. 355). Reference Rittenberg, Larry E, Karla M. Johnstone, and Audrey A. Gramling. Auditing: A Business Risk Approach. Melbourne, Vic. : South-Western Cengage Learning, 2012. Print. 163 Russell, J P. The Asq Auditing Handbook: Principles, Implementation, and Use. Milwaukee, Wis: ASQ Quality Press, 2013. Print. Pickett, K H. S.
The Internal Auditing Handbook. Hoboken, N.J: Wiley, 2013. Internet resource. 355