Audit and Soups Inc. Essays
Electronic Cash Confirmation Process into the Auditing Curriculum
ABSTRACT: Simply Soups Inc., a producer of organic canned soups, has hired your firm,
Putnam and Jacobs LLP, to perform a financial statement audit for the year ended December 31,
2013. Using the PCAOB’s proposed standard on confirmations and electronic confirmations, you are to complete the testing of the cash balance reported by Simply Soups Inc. at year-end. Today, a majority of large banks require auditors to use electronic cash confirmation requests and, as a result, mostly all large audit firms use them. When using electronic confirmation requests, audit firms typically rely on a third-party …show more content…
As a result, and most importantly, electronic confirmations sent through secure third-party intermediaries can make it more difficult for a fraudster to intercept and alter confirmation requests. Peregrine Financial Group, Inc. (PFGBest) is a recent example of a cash confirmation fraud that was detected in large part through the use of electronic confirmations. For twenty years the CEO at PFGBest defrauded investors. To help conceal his fraud, the CEO rented a post office box to intercept bank confirmation requests and then forged official bank signatures to
“confirm” the fraudulent bank balances and mislead regulators about the cash balance maintained by his brokerage firm (Rothfeld, Patterson, and Bunge 2012). However, when the regulators switched to electronic confirmations processed by a secure third-party intermediary, the CEO was unable to intercept or alter the confirmations any longer and his 215 million dollar fraud was exposed (Bunge, Patterson, and Steinberg 2012).
Unfortunately, in recent years, there has been an increase in the use of the cash account as a mechanism to help perpetrate fraudulent actions by management. As a result, and perhaps not surprisingly, several other cash confirmation frauds like PFGBest have been