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Auditing Essay

4188 words - 17 pages

Comprehensive Case United States Surgical Corporation 1 Running head: COMPREHENSIVE CASE U.S. SURGICAL CORPORATION

Comprehensive Case United States Surgical Corporation Scott P. McHone Liberty University

Comprehensive Case United States Surgical Corporation 2 Abstract During the past thirty years we have seen an increase in the number of companies that have committed some form of financial shenanigans. Some of these companies have manipulated Generally Accepted Accounting Principles to present themselves as financially sound. Others have committed fraud to achieve the same objective. With this type of corporate behavior there is an increasing need for better auditing and more reliable ...view middle of the document...

(Audit Procedures Manual, 2006, p. 1) The following audit procedures along with test of controls would help increase the possibility of detecting the overstatement. Control Objective: “Determine   whether the company has adequate and effective disposal policies and procedures, which will aid in maintaining accurate fixed asset records.” Test of Control (Procedure): “1.  Review  the  policies  for  disposing  of/  retiring  capital  assets.

Comprehensive Case United States Surgical Corporation 4 2. Review the authorization policies for capital asset disposal/ retirements. 3. Review the policies for reporting items that are retired or abandoned. Make a note of how applicable gains/losses are recognized. 4. On a sample basis, select 5 retired capital assets from the fixed assets records and perform the following tests: Assess whether the assets retirement was properly approved and whether this was done on a timely basis. Establish whether record of the asset retired was properly removed from the general ledger and fixed asset register (if no longer in use). Check whether any applicable gains and losses were recognized and reported on a timely basis. 5. Ensure that only a specific employee/employees have access to the asset records for performing the asset retirement function.”  (Meiring,  2001,  p.  5) The following additional procedures should have been developed based on the facts and circumstances surrounding the audit: For the year 1981 develop a spreadsheet of all the additions to and deletions from the “Other  Asset”  account. Start with beginning balance as of the beginning of the year, add all additions, subtract all deletions, and tie out to the ending balance at the end of the year. This spreadsheet could be developed by downloading data from other source documents and expanded to include depreciation, etc. Take a scientific sample of additions to this spreadsheet and trace these acquisitions to source documents that substantiate the purchase of these assets. Verify that these assets have not been duplicated elsewhere in the books and records of United States Surgical Corporation. Downloading

Comprehensive Case United States Surgical Corporation 5 the entire fixed asset sub-ledger into a spreadsheet and performing an advanced sort and matching of data could achieve this objective. Question two addresses the issue that United States Surgical Corporation extended the useful life of some of its fixed assets and implemented salvage values for the first time ever. There are situations where this can be within the guidelines of Generally Accepted Accounting Principles. According to APBO Number 20, which was applicable during the 1981 audit period, changes in accounting estimates for asset salvage values and useful life are permissible when updated information is made available that reflects more  accurate  data  and  estimates.  “Changes  are handled Prospectively, since estimates are an inherent part of accounting. Example -- Change in...

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