Question

Whitlow & Company is a brokerage firm registered under the Securities Exchange Act of 1934. The act requires such a brokerage firm to file audited financial statements with the SEC annually. Mitchell & Moss, Whitlow’s CPAs, performed the annual audit for the year ended December 31, 2016, and rendered an unqualified opinion, which was filed with the SEC along with Whitlow’s financial statements. During 2016, Charles, the president of Whitlow & Company, engaged in a huge embezzlement scheme that eventually bankrupted the firm. As a result, substantial losses were suffered by customers and shareholders of Whitlow & Company, including Thaxton, who had recently purchased several shares of stock of Whitlow & Company after reviewing the company’s 2016 audit report. Mitchell & Moss’s audit was deficient; if they had complied with auditing standards, the embezzlement would have been discovered. However, Mitchell & Moss had no knowledge of the embezzlement, nor can their conduct be categorized as reckless.

Answer 1

IN THIS QUESTION IT IS CLEAR THAT THE AUDITOR FAILED TO DISCOVER THE EMBEZZLEMENT . WE KNOW THAT AUDITING WORKS ARE CONDUCTED TO ENSURE THAT THE ACCOUNTING RECORDS ARE ACCURATE AND COMPLIED WITH VARIOUS PRINCIPLES AND STANDARDS OF ACCOUNTING. SO THE AUDITOR SHOULD GIVE PROPER CONCENTRATION ON DOING HIS TASK. BECAUSE LARGE NUMBER OF PEOPLE DEPENDS ON THE FINANCIAL REPORTS PUBLISHED BY THE COMPANY.

INVESTMENT MADE BY THE PEOPLE DEPENDS ON THE FINANCIAL RESULTS OF THE COMPANY. IF IT IS MANIPULATED, INVESTORS LOSS THEIR AMOUNT. SO AUDITORS ARE APPOINTED BY THE COMPANY TO PRESENT A TRUE AND FAIR FINANCIAL REPORT TO PUBLIC AND FOR THOSE WHO DEPENDS ON THE COMPANY. THEREFOR THE AUDITOR SHOULD CHECK EACH AND EVERY TRANSACTION WITH DOCUMENT EVIDENCE AND GIVE FULL EFFORT TO FIND OUT ERRORS AND UNFAIR PRACTICES . IT IS THE DUTY OF THE AUDITOR TO ENSURE THAT THE FUND MANAGEMENT ARE PROPER AND NO MANIPULATION FOUND ON IT.

            BUT IN THIS CASE THE AUDITOR FAILED OR OMITTED TO IDENTIFY THE EMBEZZLEMENT. A PROFESSIONAL AUDITOR CAN EASILY IDENTIFY ANY FRAUDULENT ACTIVITY IN ACCOUNTING RECORDS. BECAUSE UTILIZATION OF FUND IS A MAJOR QUESTION IN AUDITING. HERE FUNDS ARE USED IN WRONG WAY. SO IT IS CLEAR THAT PROPER AUDITING WORK IS NOT CARRIED OUT BY THE AUDITOR. SO THIS CONDUCT IS TRULY RECKLESS.

SO THE REASON FOR LOSS SUFFERED BY THE COMPANY AND ITS CUSTOMERS IS THAT THE AUDITOR CONDUCTED A RECKLESS AUDITING WORK OR HE MANIPULATED THE AUDITING REPORTS .

THANK YOU