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An Example of an Attestation Engagement, Fraud Scheme, etc.

1) Describe an example of an attestation engagement.

2) Describe a fraud scheme that could be used for information assets and explain the controls that can mitigate this fraud risk.

3) Explain the links between business continuity, system availability, and disaster recovery.

The completeness assertion is crucial for accounts payable. A common financial statement misstatement involves companies moving current liabilities from accounts payable to long term liabilities or to some other account in order to improve their financial statement liquidity ratios. When a company begins to drown in their accounts payable balance, it diminishes the financial strength of their balance sheet. In addition, many companies have debt covenants in place attached to their long term and short term debt, and the covenants usually state that current liabilities must be kept below a certain amount. If the A/P has climbed above an acceptable amount, it gives management the motivation to move A/P to another area, or to postpone posting A/P transactions that should be included in the current financial statement, until the next period. When an auditor tests for the completeness assertion for accounts payable, the auditor is testing to verify that all A/P transactions which should be included are included in the financial statements, and that they are being carried at the proper amounts.

4) Accounts payable is usually the largest current liability in a balance sheet and a significant factor in evaluating an entity's short-term solvency. The audit of payables places greater emphasis on the completeness assertion. The reason for this is that if management were motivated to misrepresent payables, it would likely be to understate them in order to report a more favorable financial position. Correct?

If management is held too rigidly to delivering targeted earnings, it may cause the incentive to misstate the financial statement through the management of purchases cutoff or other steps that result in unrecorded liabilities.

Solution Preview

1) A sample attestation engagement would be an engagement to review the company's financial statements. The engagement would be presented in the form of a letter to the board of directors or management, and would specifically describe the conditions of the engagement. The CPA would explain what he/she will review, the basic procedures that would be performed (not specifics), the limitations of the engagement, and the fact that the CPA will use due professional care in fulfilling his/her duties. The attestation engagement would also include the timing of the attestation, including the latest date that the attestation report will be issued by the CPA, compensation, recommendations from the CPA, and a request for management/board of director approval on the attestation engagement. The attestation engagement is usually anywhere from 4 to 6 pages. The CPA doesn't go into specific details regarding the actual tests because he/she doesn't ...

Solution Summary

This solution thoroughly explains the links between business continuity, system availability, and disaster recovery. I also explain how and why accounts payable is oftentimes misstated to improve the financial statements, and give detailed explanations based on the student information provided related to attestation and fraud.