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Lin Ge Mini Case1
Ge Lin
Mini Case1
Something Went Sour at Parmalat
Discussion Questions:
Question 1
(1)When confirming cash balances held on deposits, the auditor should list as the “balance per bank” on the top of the bank reconciliation for each bank account from each bank that the client utilizes in the business. And a confirmation letter is to be sent by the auditor and received in the mail directly back from each bank at offices of the public accounting rim.
(2)The auditor should observe the opening of the mail and ensure that:
a. Two employees are opening the mail. Remittance advice is received, and check is restrictively endorsed.
b. A listing of all checks is being prepared and compared to total of deposit ticket for total of checks.
C. Trace the deposit ticket to the bank statement to ensure that deposit was recorded in proper period.
(3) For a sample of daily postings to the accounts receivable subsidiary ledger, the auditor should trace the amount to the amount of cash deposited in bank on that day as per the bank statement.
Question 2
The auditors must remain alert od the potential for fraud when collecting corroborating evidence to financial statements. Differences in the accounting records, conflicting evidence, and missing documentation are all symptomatic statement fraud. The auditor should:
1. Follow up with management to identify the source of the problems. Management’s response is important source of evidence.
2. Preserve the chain of custody of evidence.
3. Retrieve Customer’s checks.
Ask the customer to give originals or copies (front and back) or to provide access for examination.
4. Use marked coins and currency
5. Document Examination. Auditors should always insist on seeing original documents instead of photocopies.
Question 3
Red Flags which auditors miss:
1. The size of the account. On its own, should have been a red flag. It is very unusual for a large company to have so much cash in a single account. In addition, Parmalat raised more than $5

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