Audit Failure
Phillip Canamar
Accounting Case Analysis
LP1 Assignment: Audit Failure 1. Analyze the actions of the auditors in both cases and identify any errors in judgment made by the auditors.
The action of the Auditors, Audit Committee, and top management that worked for Molex Corporation were in error because FASB Concept Statement #2 (materiality defined) appears to apply to this case and should have know the appropriate way to handle the situation that conforms with GAAP and adjust the financials in the first quarter and note them in the second. Another error I that no mention of the adjustment was ever presented on the financials as to why there was an adjustment.
In the case of Deloitte & Touche there error was telling Molex, Inc that thy would only be able to complete its review of the first quarter results in connection with the company's 10-Q filing when representations were received from the new CFO and a new CEO and if both King and Bullock were removed as executive officers having no influence over financial reporting or internal controls.
2. Describe what you think the auditors should have done differently and explain why.
Deloitte & Touche demonstrated three-party accountability; users do not trust management sufficiently to rely on their financial statements. To reduce these doubts, the users demand that the financial statements be verified by a competent, independent third party—the auditor. Thus, the auditor is also accountable to the user to properly verify the financial information. This three-party accountability is an important distinguishing feature of auditing and pertains to many engagements. I understand why Deloitte & Touche terminated the relationship with Molex, Inc. based on this responsibility however some areas of handling it differently would have been if auditors believe that CEOs and directors are not acting promptly to remedy a material error in the company's financial statements, for example, they must notify the SEC
Accounting Case Analysis
LP1 Assignment: Audit Failure 1. Analyze the actions of the auditors in both cases and identify any errors in judgment made by the auditors.
The action of the Auditors, Audit Committee, and top management that worked for Molex Corporation were in error because FASB Concept Statement #2 (materiality defined) appears to apply to this case and should have know the appropriate way to handle the situation that conforms with GAAP and adjust the financials in the first quarter and note them in the second. Another error I that no mention of the adjustment was ever presented on the financials as to why there was an adjustment.
In the case of Deloitte & Touche there error was telling Molex, Inc that thy would only be able to complete its review of the first quarter results in connection with the company's 10-Q filing when representations were received from the new CFO and a new CEO and if both King and Bullock were removed as executive officers having no influence over financial reporting or internal controls.
2. Describe what you think the auditors should have done differently and explain why.
Deloitte & Touche demonstrated three-party accountability; users do not trust management sufficiently to rely on their financial statements. To reduce these doubts, the users demand that the financial statements be verified by a competent, independent third party—the auditor. Thus, the auditor is also accountable to the user to properly verify the financial information. This three-party accountability is an important distinguishing feature of auditing and pertains to many engagements. I understand why Deloitte & Touche terminated the relationship with Molex, Inc. based on this responsibility however some areas of handling it differently would have been if auditors believe that CEOs and directors are not acting promptly to remedy a material error in the company's financial statements, for example, they must notify the SEC