Academic journal article Journal of the International Academy for Case Studies

REVIEW OF AMG's QUARTERLY FINANCIAL STATEMENTS: A SHORT CASE ABOUT AUDITOR RESPONSIBILITIES AND REQUIREMENTS

Academic journal article Journal of the International Academy for Case Studies

REVIEW OF AMG's QUARTERLY FINANCIAL STATEMENTS: A SHORT CASE ABOUT AUDITOR RESPONSIBILITIES AND REQUIREMENTS

Article excerpt

INSTRUCTORS' NOTES

CASE DESCRIPTION

The primary subject matter of this case concerns reviews of interim (quarterly) financial statements. More specifically, this instructional case provides students with a real world example of a failure in the review of interim financial information of a registrant client. The case has a difficulty level of four or five and is appropriate for a senior level or a graduate auditing course either online or on-ground and on an individual or team basis. The case can be completed concurrently with the coverage of other assurance services, specifically, the review of interim financial information for public companies. The case is designed to be taught in a single class period and is expected to require two hours of outside preparation by students.

CASE SYNOPSIS

Review engagements are included in the services that auditors or assurance practitioners provide and are therefore an important topic that should be covered in an auditing course. In addition, standards and requirements for reviews differ from audits, consequently students should have the opportunity to determine the requirements and make decisions relevant to a review of financial statements. This case, based in part upon a Securities and Exchange Commission's Accounting and Auditing Enforcement Release, requires students to put themselves in the position of the accountant conducting a review of the quarterly financial statements of AMG, a manufacturer of a wide variety of products whose stock trades on an organized exchange. Students have to decide how best to conduct the review given the circumstances, and determine what type of review report, if any, to issue following the relevant Public Company Accounting Oversight Board (PCAOB) standards. The discussion questions are designed to facilitate classroom discussion; however, they can also be used as written homework assignments if classroom time is limited, or as online discussion questions in an online class.

CASE OVERVIEW

This case is based, in part, upon Securities and Exchange Commission's (SEC's) Accounting and Auditing Enforcement Release No. 3146 dated June 24, 2010, issued in the matter of Fei-Fei Catherine Fang, CPA, who served as the independent auditor and reviewer for Advanced Materials Group, Inc. (AMG), a manufacturing company headquartered in Garland, Texas. Ms. Fang was relatively inexperienced in auditing and reviewing financial statements for registrants, AMG being her very first audit. The substantial quarter end sales mentioned in the case (and the corresponding receivables) recorded by AMG were false sales and were, according to the SEC (2010), part of a fraud scheme that took place at AMG during 2008 and 2009. These sales (and the corresponding receivables) were reversed in the subsequent quarter (see SEC 2010 for more details). This instructional case provides students with a real world example of a failure in the review of interim financial information of a registrant client. To answer the discussion questions, students are required to access the PCAOB's standards for review engagements (specifically AS 4105) and then determine what would have been the best course of action in this case.

SUGGESTIONS FOR CLASSROOM USE

This case may be used in a first or second auditing course concurrently with the coverage of other assurance services, specifically, the review of interim financial information for public companies. In the Arens, Elder, Beasley and Hogan (2017) auditing textbook, reviews of quarterly financial statements of public (issuer or registrant) clients are covered in Chapter 25. This case can also be used in a graduate auditing course and either online or on-ground and on an individual or team basis. The discussion questions are designed to facilitate classroom discussion; however, they can also be used as written homework assignments if classroom time is limited or as online discussion questions in an online class. …

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