Essay about Adelphia Case 1
The Allegations: Prosecutors say members of the cable company's founding family and two former executives looted the firm "on a massive scale," spending company funds on personal expenses, such as a $12.8 million golf course. The firm has been accused of hiding business relationships between Adelphia and entities tied to the founders and for inflating its financial results.
• John J. Rigas, Adelphia's founder
• Timothy Rigas, former CFO
• Michael Rigas, former executive VP
• James R. Brown, former vice president
• Michael C. Mulcahey, former vice president and assistant treasurer
What's happened: All were indicted on federal fraud charges. The SEC filed civil charges, and Adelphia sued the …show more content…
7) Discuss which changes could be done to the Adelphia’s control system and corporate governance structure to mitigate the risk of accounting fraud in future years.
Total involvement of Audit committee, replacement of some directors with those that is independent, for example like non-family members. There should be transparency and ethical policy in place.
8) What is the auditor’s responsibility in case of fraud?
Auditors need to overcome some natural tendencies, like overreliance on client representation and biases, and approach audit with a skeptical attitude and questioning mine. Thus, they need to gather information needed to identify risks of material misstatement due to fraud. Assess these risks after taking into account an evaluation of the entity’s programs and control and respond to the results.
9) What is the proper audit procedure to ensure: a) completeness of liabilities in the financial statements? b) that all the related parties have been included or disclosed in the consolidated financial statements?
Firstly, they can test for existence or occurrence by addressing whether assets or liabilities existed at a given date whether recorded transactions occurred during a given period.