ACCT 404 Week 5 Group Discussion Board Forum 3 Thread Example

Group Discussion Board Forum 3 Thread: Fraud Risk Brainstorming

ACCT 404 Assurance and Attestation, Group Discussion Board Forum 3 Thread

Thread by [Student Name]

The client and its facts are composites; the textbook and the peer-reviewed research cited are real.

Northgate Medical Supply distributes surgical and wound-care products to clinics. Its sales representatives earn quarterly bonuses when revenue targets are met, and the company has met every target for eight straight quarters, often through a large order booked on the final day. The controller resigned in June, and an interim manager now approves credit memos and journal entries. Staff describe the culture as one where missing the number is not an option. Several long-tenured salespeople have recently left. Their replacements were hired on the same bonus terms. None of these facts proves wrongdoing, but together they describe the conditions the standards ask auditors to take seriously.

Louwers et al. (2018) explain that the engagement team must talk through where and how fraud could materially distort the client's statements, weighing the incentives, opportunities and attitudes present. At Northgate, the bonus plan and the unbroken streak create pressure. The vacant controller role and combined approval duties create opportunity. A culture that treats the target as non-negotiable supplies the rationalization: everyone does what it takes. Revenue recognition at quarter-end is the obvious risk, because a single late shipment, an undisclosed right of return or a bill-and-hold arrangement could carry a quarter over its target.

The meeting is worth holding only if the plan looks different afterward. A brainstorming session that ends with last year's audit program has not done its job. For Northgate, the team should test cutoff on every large order in the last week of each quarter, confirm terms, including return rights and side agreements, directly with the customers who placed those orders, and examine credit memos issued in the first weeks of each new quarter. It should also add at least one procedure the client would not anticipate, such as visiting a customer's receiving dock or testing a sample of small shipments the team normally ignores.

Research supports this use of the meeting. Carpenter (2007) found in an experiment that audit teams that brainstormed generated more quality fraud ideas than auditors had generated individually before the session, including new ideas that emerged during the discussion. Hoffman and Zimbelman (2009) found that brainstorming and strategic reasoning, thinking about how a manager would conceal a fraud from the auditor, helped auditors modify their standard procedures more effectively in a high-risk setting, which is exactly where audits most often fall short. An engagement team that skips this step tends to repeat the prior year's plan. The PCAOB's inspections had reported that auditors often failed to change their procedures when fraud risk was high, so the finding speaks directly to a known weakness.

For an auditor with a Christian worldview, skepticism is not cynicism about people; it is a commitment to truth that protects honest employees, investors and the bank alike.

References

Carpenter, T. D. (2007). Audit team brainstorming, fraud risk identification, and fraud risk assessment: Implications of SAS No. 99. The Accounting Review, 82(5), 1119-1140. https://doi.org/10.2308/accr.2007.82.5.1119

Hoffman, V. B., & Zimbelman, M. F. (2009). Do strategic reasoning and brainstorming help auditors change their standard audit procedures in response to fraud risk? The Accounting Review, 84(3), 811-837. https://doi.org/10.2308/accr.2009.84.3.811

Louwers, T. J., Blay, A. D., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C. (2018). Auditing & assurance services (7th ed.). McGraw-Hill Education.