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    Auditing Wabash Company and Budget

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    When you are first retained to audit the financial statements of Wabash Company, you inquire whether a budget is used to control costs and expenses. The controller, James Lowe, replies that he personally prepares such a budget each year, but that he regards it as a highly- confidential document. He states that you may refer to it if necessary, but he wants you to make sure that no employee of the firm sees any of the budget data.

    What are your thoughts on this use of the budget?

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    What are your thoughts on this use of the budget?

    Having a secret budget is very suspicious. One of the main purposes of a budget is to coordinate the activities across the firm, communicate what is authorized, share the expectation levels of activity and control costs. If you do not share any of the budget, none of these goals can be met. What, then is the purpose if only one person knows? It speaks to either wrong-doing or incompetence. If the controller does not know the value of a budget, that is incompetence. If the controller is ...

    Solution Summary

    Your discussion is 333 words and a references and mentions three reasons this is a serious risk factor.