Question

Please respond to the following: Use the Internet or visit the U.S. Securities and Exchange Commission Website to research at least two sanctions levied against companies that have violated general accounting principles. Briefly analyze whether or not investors who were misled by relying on financial statements could hold the audit firm liable for audit failure either by common or securities laws. Provide a rationale for your response. The accounting profession has long contended that an audit conducted in accordance with generally accepted auditing standards (GAAS) provides reasonable assurance that there are no material misstatements contained within financial statements. Suggest at least two alternative methods that auditors can use to provide a more concrete level of assurance to investors. Provide support for your responses with examples of such methods in use

Answer 1

Two alternative methods that auditors can use to provide a more concrete level of assurance to investors are:

Analytical procedures: These procedures are used in obtaining an understanding of an entity and its environment and in the overall review at the end of the audit. It refers to an evaluation of information whether financial or any other and review of relationship in that information. It involves analyzing the trend and identifying the relationship between the data as presented.

Substantive procedures: These are the procedures which helps to detect whether any material misstatements occur in the financial statements.

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