Nextcard Case Summary

Nextcard’s audit engagement partner Thomas Trauger’s behavior demonstrates the pressure and ethical dilemmas that auditors encounter on a daily basis when managing the audit of a large company. I found it hard to believe that an audit partner would unashamedly violate the audit profession’s ethical standards and push his employees to follow his footsteps. Another thing I found interesting was numerous promises and expectations made by Nextcard executives regarding the company’s future profits. Nextcard’s management team vouched that there would be a profit next quarter, when in reality their reoccurring losses were destabilizing the company.
When assessing the auditor’s fraud risk, you will see that all elements of the fraud triangle exist. Management did not have an effective internal audit team, and there were many fraud risk factors that existed. Nextcard’s repetitive operating losses were damaging the company’s financial condition, causing motivation to conceal their financial situation. In order to conceal their financial problems Nextcard executives were …show more content…
Due to the high risk of material misstatement, the detection risk for the audit should have been assessed as low, and the risk factors should have been evaluated prior to starting the audit. Specific examples of audit procedures that could have been used include: requesting client inventories to be counted at year end, rather than at interim point, reviewing the business rationale for infrequent transactions, hiring more experienced staff members, or even performing some audit procedures without warning in order to catch clients off-guard. Auditors should’ve also evaluated the difference between managers estimated amounts and the estimates supported by the audit evidence, or possibly engaged a specialist to examine management’s