Academic journal article Journal of the International Academy for Case Studies

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

Article excerpt

INTRODUCTION

In this case, you are placed in the position of the accountant conducting a review of the quarterly financial statements of AMG, a manufacturer headquartered in Dallas, Texas. AMG's common stock is registered with the Securities and Exchange Commission (SEC) and trades on an organized exchange. Your firm has charged you with deciding how best to conduct this review, and what type of review report, if any, to issue following the relevant Public Company Accounting Oversight Board (PCAOB) standards on reviews of interim financial information.

BACKGROUND

You graduated with your Master's degree in Accountancy from a small private university recently, and went to work immediately for a small (four individual - one Partner, one Manager, and two staff members including yourself) public accounting firm in Dallas, Texas. Earlier this year, you passed your last part of the Certified Public Accountant (CPA) examination, and recently became registered as a CPA in the state of Texas (i.e., licensed with the Texas State Board of Public Accountancy). You worked on your first audits last year for two small privately held clients. In February of this year, you completed your first audit of AMG, your firm's first registrant (publicly traded) client. Your firm issued an unmodified opinion based on the results of your audit work. Auditing a registrant turned out to be more work than you were anticipating, but you learned during the process.

REVIEW OF INTERIM FINANCIAL STATEMENTS

Now, AMG has asked your firm to review their interim (quarterly) financial statements in accordance with the applicable PCAOB professional standards. Your firm agrees to perform such a review. An interim review engagement letter, as required by PCAOB, is signed by your firm and by AMG's audit committee (a committee of AMG's board of directors).

The Partner asks you to begin your review of AMG's interim (quarterly) financial statements. During your review procedures, you discover that during the first quarter of the fiscal year (hereafter abbreviated as Q1), AMG recorded significant amounts of sales near the end of the quarter. Each of these sales was for amounts that were substantially higher than those typically recorded by AMG. For instance, if the average sale during Q1 was for $5,000, then the average sale recorded near the end of Q1 was for $100,000. …

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