Essay on The Beginning
Case Set 2
1. Read AU 110
(a) What are management’s responsibilities pertaining to the independent audit?
According to the PCAOB Standards, section AU 110.03 clearly states that management shall bear responsibility for all issued financial statements, the adoption of sound accounting policies, and for establishing and maintaining a system of internal controls that will record, track and process transactions, events and conditions. Management shall also maintain an understanding of all transactions made within the entity being audited. Due to this fact, management is also responsible for the fair presentation of financial statements in compliance with generally accepted accounting …show more content…
I would advise against taking Hood as a client at this time. There are some major pitfalls that Hood fall under. The main problem in being that Beth is part of the audit committee and is CEO of the company. This shows an extreme lack in independence for the company. The fact that Frank Dodd was promoted to CFO shows a complete lack of internal controls and could also contribute to lack of independence shown within the company. There is also the problem with the material misstatement of accounts payable, but the real problem lies in the company’s internal controls. I would advise not accepting the audit since there are some major red flags and this would be the firm’s first client in the industry, which would make them more prone to fraud if Hood is involved in underhanded dealings.
Obtain the most recent annual reports for AT&T, CenturyLink, Verizon, and Windstream. In your write-up, note the fiscal year you are using, the financial statement audit opinion, and the internal controls audit opinion for each company.
Calculate the following ratios for each company, and calculate an “industry average” consisting of the average ratio for the four companies. Document your calculations:
Operating Cash Flow Ratio
Days Outstanding in A/R*
Days of Inventory on Hand
Gross Profit Percentage