Essay on Foamex International Inc.

1349 Words Jun 26th, 2013 6 Pages
1. The final responsibility for the integrity of an SEC registrant’s internal controls lies on the management team. U.S. companies need to refer to a comprehensive framework of internal control when assessing the quality of financial reporting to determine that financial statements are being presented under General Accepted Accounting Principles, GAAP. The widely used framework is referred as COSO, Committee of Sponsoring Organizations of the Treadway Commission, sponsored by the following organizations American Accounting Association, the American Institute of CPA’s, Financial Executives International, the Institute of Internal Auditors, and the Institute of Management Accountants. COSO’s defines internal control as:

A process,
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4. Reporting
a. The auditor expresses an opinion as to whether the financial statements are free of material misstatement or states that an opinion can not be expressed.

3. A client can terminate a relationship with an audit firm, if the company feels that firm did not meet the expectations of the engagement letter or the firm’s business commitment has expired. Some causes could be 1. Violating client confidentiality 2. Failing to provide the audit report on time 3. Failing to discover a material error or employee fraud or 4. Withdrawing from an audit engagement without justification. If any of these did transpire, the audit firm would be in Breach of the contract and the client could seek to recover damages based on negligence.

An audit firm can terminate a business relationship only if met its expectation on the engagement letter or if the contract has expired with the client. If the client does not follow the firm’s recommendations after several attempts to convey management that is needed, then the auditor would have a valid reason to terminate their relationship or if the client is committing an unlawful act. If the company breaches their contract with the audit firm, the chances are slim that they would seek financial damages because their business is based on referrals from current and past clients. Plus it would not help their public image if they went after a client for damages.


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