Auditing and Assurance Services Update
Auditing and Assurance Services Part 1 Part 2 Part 3
Article Title 1 2 3 4 5 6 7 8 9 10 11 12 A B C D E F G H
1. Mandatory Audit Firm Turnover, X X
Financial Reporting Quality, and
Client Bargaining Power: The
Case of Arthur Andersen
2. Factors Associated with U.S. Public X
Companies’ Investment in Internal
3. Influential Deleware Slams Sarbox X
4. PCAOB Probing Deloitte Audit X X
5. Material Weakness Reports X X
6. BriteSmile Auditor Resigns X X
7. PCAOB Toughens Independence X X X
8. E&Y to Resign as Selectica X X X
9. How Markets Punish Material X X X
10. Asia: Uncooking the books; X
11. Audit Committee Chairs Concur on X
12. Internal Auditors Step Into The X
13. McDonough Tells Auditors to be X
Reasonable on 404 Attestation
14. WorldCom: Bernie Ebbers X
15. KPMG Canada, Partners Settle X X
16. Delphi Restates 2001-2004 Results; X X
Quarterly Loss Set
17. Scrushy Should Face Charges In X
Civil Lawsuit, SEC Argues
18. One More Cost Of Sarbanes-Oxley: X
Outsourcing to India
19. For Audit Firms, All Bets Are Off X
20. Accountants Get New Curbs On X
21. The Stolen Guitar and Other X
22. Navigating the Standards for X X
Information Technology Controls
23. The Mean and the Median and X X
1. Mandatory Audit Firm Turnover, Financial Reporting Quality, and Client Bargaining Power: The Case of Arthur
Andersen Accounting Horizons (June 2005), 51-68, Albert L. Nagy.
Examined how change in auditors from Arthur Andersen to successor influenced the quality of financial reporting by companies.
Results indicated that smaller companies had a reduction in the amount of their discretionary accruals under the successor auditor.
2. Factors Associated with U.S. Public Companies’ Investment in Internal Auditing Accounting Horizons (June 2005), 69-84,
Joseph Carcello, Dana Hermanson, and K. Raghunandan.
Total internal auditing budgets are related to company size, leverage, amount of inventory, operating cash flows, and audit
committee review of the internal audit budget.
3. Influential Delaware Judge Slams Sarbox CFO.com (July 6, 2005), Stephen Taub.
Judge Leo Strine described the Sarbanes-Oxley Act as a “strange stew” with “narrow provisions of dubious value”.
Among Strine’s complaints is the fact that corporate boards were required to fulfill various legislative mandates not related to the
core problems that gave rise to Sarbanes-Oxley legislation
4. PCAOB Probing Deloitte Audit CFO.com (July 8, 2005), Stephen Taub.
In its first probe of an audit conducted by a Big Four firm, the PCAOB is investigating the 2003 audit of Navistar conducted by
Deloitte & Touche.
While not specified, the PCAOB noted that Deloitte may have failed to comply with at least five auditing standards.
5. Material Weakness Reports Skyrocket CFO.com (July 13, 2005), Helen Shaw.
Through May 2005, 586 companies have reported material weaknesses in internal control, compared to 313 companies for all of
The major accounting firms issued qualified, adverse, or disclaimers of opinions for between 3 and 5 percent of their clients.
6. BriteSmile Auditor Resigns CFO.com, July 25, 2005, Craig Schneider.
BriteSmile, Inc.’s auditor (Deloitte & Touche) resigned because of concerns about the company’s internal controls.
Some of the deficiencies were related to payments to vendors made without supporting documentation, physical inventory counts,
tracing of fixed assets, and timely completion of account reconciliations.
7. PCAOB Toughens Independence Rules CFO.com, July 26, 2005, Craig Schneider.
The PCAOB adopted a rule disallowing auditors from providing certain tax-shelter advice to their clients.
The circumstances in which independence would be impaired are: (1) entering into contingent fee arrangements; (2) providing
services related to tax treatment of a confidential transaction or a transaction based on aggressive interpretation of the tax laws
and regulations; and, (3) providing tax services to certain members of management (or their immediate family) who serve in
financial-reporting oversight roles at an audit client.
8. E&Y to Resign as Selectica Auditor CFO.com, July 26, 2005, Craig Schneider.
Material weaknesses in internal control resulted in Ernst & Young resigning as auditor of Selectica, Inc., an e-commerce software
provider based in San Jose, California.
Material weaknesses resulted in financial statement misstatements in the following areas: (1) reserves related to accounts
receivable and services revenue; (2) classification of cash equivalents and short- and long-term investments; (3) reversal of
deferred revenues; (4) failure to record expenses related to termination of an employee; and, (5) accounting treatment of bonuses.
9. How Markets Punish Material Weaknesses CFO.com, July 21, 2005, Marie Leone.
An analysis of the effect of internal control deficiencies on share prices revealed that share prices dropped 0.67 percent in the day
following disclosure of a material weaknesses; the decline increased to 4.06 percent following 60 days from disclosure of a
The decline in share price was smaller if companies filed their reports on time.
10. Asia: Uncooking the books; China The Economist ( London), July 9, 2005.
China's auditor-general, Li Jinhua, is a man who has dared to violate a deeply ingrained tradition of bureaucratic secrecy by
publicly naming and shaming powerful ministries for mis-spending funds.
Li's fans were not disappointed last week by his annual report to China's legislature on the scrutiny conducted by his National
Audit Office of the central budget and other government finances.
The report gave details of $1.1 billion in funds mis-spent by central departments, and $8.6 billion misused by the debt-clearing
agencies at the forefront of China's banking reforms.
11. Audit Committee Chairs Concur on Best Practices Financial Executive, July/August 2005, Jeffrey Marshall and Ellen M
In the post-Sarbanes-Oxley era, the audit committee has emerged as one of the most visible and important board committees; its
role in identifying and managing risk has never been more critical to the company it serves, or under as much scrutiny. So says a
new report by the Financial Officer practice of global executive search firm Spencer Stuart.
12. Internal Auditors Step Into The Spotlight CPA Journal, Summer 2005, Thomas R Strause.
With the implementation of Sarbanes-Oxley protocols, they are now stand-outs in the conference room.
Audit committees and management look to internal auditors for more than status reports on the condition of internal controls
within the organization. They are also seeking guidance on risk management issues.
13. McDonough Tells Auditors to be Reasonable on 404 Attestation Strategic Finance July 2005, Stephen Barlas, Lance Mertz,
Paul Shillam, Kathryn Vagneur, Kathy Williams.
Amidst the ferment over Sarbanes-Oxley Section 404 reports to the sec, William McDonough, chairman of the Public Company
Accounting Oversight Board (PCAOB), tried to clear up a couple of relevant points at hearings in the House Financial Services
McDonough emphasized to the Committee, "While it is necessary for the auditor to understand the overall control system and to
'walk through" the operation of all significant control processes, the focus should indeed be on what is material to the financial
statements, not on the trivial."
14. Ebbers to Surrender Assets to Settle WorldCom Suit Wall Street Journal, July 1, 2005, C3.
Former WorldCom CEO Bernie Ebbers agreed to surrender nearly all of his assets to a liquidation trust in order to settle
shareholder lawsuits. In exchange, prosecutors will not seek restitution at his sentencing hearing. Ebbers faces up to 85 years in
jail for his role in the $11 billion fraud.
Ebbers Is Sentenced to 25 Years For $11 Billion WorldCom Fraud, The Wall Street Journal, July 14, 2005, A1.
Former WorldCom CEO Bernie Ebbers was sentenced to 25 years in prison for his role in the largest accounting fraud in history.
The judge commented that she recognized that the “sentence is likely to be a life sentence, but I find a sentence of anything less
would not reflect the seriousness of this crime."
15. KPMG Canada, Partners Settle Auditing Charges Dow Jones Newswires, July 1, 2005.
The Securities and Exchange Commission on Thursday announced a settlement with KPMG Canada for a violation of auditor
independence rules. The SEC found that the Big 4 firm provided bookkeeping services to Southwestern Water Exploration Co.,
and then audited its own work.
16. Delphi Restates 2001-2004 Results; Quarterly Loss Set Wall Street Journal, July 1, 2005, A3.
In the wake of an internal investigation of questionable accounting involving transactions with General Motors (a related party),
auto supplier Delphi will restate its results for a 4-year period ending in 2004.
17. Scrushy Should Face Charges In Civil Lawsuit, SEC Argues Wall Street Journal, July 8, 2005, C2.
Although found not guilty of 36 conspiracy to commit fraud criminal counts, former HealthSouth CEO Richard Scrushy may still
face civil charges. HealthSouth settled with the SEC last month by paying a $100 million fine.
18. One More Cost Of Sarbanes-Oxley: Outsourcing to India Wall Street Journal (July 14, 2005), C1.
A number of companies are looking to outsource their internal control analysis testing to India to reduce the cost of resources
necessary to comply with Sarbanes-Oxley.
19. For Audit Firms, All Bets Are Off Wall Street Journal, July 21, 2005, C3.
Deloitte & Touche recently withdrew as auditor for WPT Enterprises, Inc., the creator of the World Poker Tour, just as the
company was starting its new online poker enterprise. The Big 4 firm cited additional “audit risks” associated with the new
gaming venture that would consume too many resources to adequately audit. Not noted in its resignation letter are concerns about
the legality of online gaming -- online gambling is illegal in the U.S., and part of the auditors’ responsibilities would include
investigating whether any online gambling customers were residing in the U.S. Additionally, online gambling requires complex
software that involves a general lack of transparency.
20. Accountants Get New Curbs On Tax Shelters Wall Street Journal, July 27, 2005, C1.
The PCAOB passed new rules which will restrict accounting firms from selling aggressive tax shelters to their audit clients. In
the past, accounting firms have been caught between obtaining the most favorable (aggressive) tax positions for their clients and
then opining that the resulting financial statements are fairly presented. KPMG is currently under investigation for “illegal
behavior” by its tax partners in the marketing of abusive tax shelters.
21. The Stolen Guitar and Other Assets, Fraud Magazine, May/June 2005, pp. 45-47; 62.
Nice short primer on asset misappropriation
Contains some elementary definitions which accounting students should know
Goes on to talk about the effects of asset misappropriation on financial statements.
22. Navigating the Standards for Information Technology Controls, The CPA Journals, July 2005, pp. 64-69.
Additional information on technology controls and how they relate to SAS 94 and government auditing standards
Included in the article are the effects SOX has on the use and testing of technology controls
The use of COBIT as a framework for testing controls is included.
23. The Mean and the Median and Interval Estimation, Internal Auditing, May/June 2005, pp. 31-36.
The authors discuss the mean and median and the construction of the confidence interval for each
This article provides additional information and examples for classical variables sampling.