Grant Thornton's Case: Grant Greenberg, Inc

771 Words 4 Pages
Grant Thornton's decision to completely rely on Jack Greenberg, Inc’s delivery receipts to perform the company audit is the controversial issue in the case given. It had justified that the independent auditor relied on the delivery receipts as the audit evidence based on the ‘segregation of duties’ system. The case here explained that JGI’s internal control procedures for inventory had been executed by different person as the purchasing, receiving and approving functions are performed by the different people than the person who executed the transactions. Different people executing different audit procedures are defined as ‘segregation of duties’ as mentioned above and it is correct for the Grant Thornton to rely heavily on JGI’s delivery receipts …show more content…
Fred Greenberg, the vice president prepared the delivery receipts all by himself and there are possibilities that he could be biased. After knowing the nature of audit evidence obtained from JCI, Grant Thornton should have not been completely rely on delivery receipts as an audit evidence to perform the company auditing. Moreover, the auditor’s direct knowledge is also tested when delivery receipts are considered as reliable audit evidence for Grant Thornton to perform JGI’s audit report. If the auditors had obtained the audit evidence directly via observations, recalculation and inspections, the evidence is more reliable than the evidence calculated by the controller itself. Hence, the independent auditor’s decision to rely only on the delivery receipts is not acceptable to perform the company audit where there are measurements available to measure the degree of reliability of an audit evidence. Based on ISA 500 Paragraph A26-A33: Reliability of Evidence, the reliability and appropriateness of audit evidence depends on the following six characteristics. There are independence of provider, effectiveness of client’s internal control, auditors’ direct knowledge, qualifications of individual providing the information, degree of objectivity and timeliness. In the case given, we can clearly see that the reliability and …show more content…
Vendors’ invoices, cancelled notes payable, and insurance policies are samples of external audit evidences. External evidences are considered as more reliable evidence because the chances of biasing and misrepresenting the external documents are lower than the internal documents which can be easily influenced by one’s self interest in the company. Vouching and tracing are the two important processes involved in handling the external documents which increase the documents’ efficacy. Vouching is when the auditors select sample items from accounting records then search for external source documents to support these transactions. For instance, the auditors might verify the substance of the journal entries made by their clients by examining the vendor’s invoices and receiving reports as a supporting documents. Concurrently, if the auditors receive the vendor’s invoices first and then match with the accounting records, this called as

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