Case Study
One of the many tasks of the independent auditor is to make adjusting journal entries for their clients. It is not unusual for a client to make a mistake or not always know the proper way to record some entries. Another required task of the auditor is to do a walkthrough of internal controls. By seeing firsthand how the client’s accounting processes work, auditors can test whether the control environment is weak and where those weaknesses exist in the system. If the control environment is weak, then the auditor cannot rely on those controls and must do further testing. It is the auditor’s responsibility to make recommendations to management on how to strengthen their controls in order to correct the weaknesses and be more reliable (Deutsch, 2011).
In this case study, two auditors have two very different opinions on the course of action they should take after discovering the company they are auditing had reported inventory $1 million higher than it truly was. Accountant A believes that by making the appropriate adjusting journal entry to correct the mistake that the problem is solved. By doing this, he has done what he needs to do as an auditor. Accountant B believes that there is more to do. She believes that as control advisors, they have the responsibility of making sure the accounting department has an effective control system. Although neither accountant is wrong, I believe Accountant B has the more responsible mindset here. If I were Accountant B, I would want to help better the accounting department’s internal controls rather than just fixing the error that resulted from the much deeper problem. It is possible that the inaccuracy of the inventory was caused by theft or fraud within the company. Personally, as a Christian, I would believe as the auditor this was the only course of action I could take in order to conduct myself honorably and in good conscience before God.
Accountant B should do thorough testing of the company’s books in...