Audit and Accountancy Pitfalls A Casebook for Practising Accountants, Lawyers and Insurers

Preface.

1 Introduction.

1.1 Staying out of trouble.

1.2 The forensic accountant’s role.

1.3 Maintaining impartiality.

1.4 The disciplines of expert witness work.

1.5 Conduct that is ’reasonably competent’.

1.6 The disciplinary arena.

1.7 Litigation in the current climate.

2 Auditors’ Failure to Detect Theft, Embezzlement and Financial Crime.

2.1 Summary of types of fraud.

2.2 Introduction.

2.3 Auditors’ responsibility for fraud detection.

2.4 Limiting liability.

2.5 Perspectives on fraud – respective responsibilities of management and auditors.

2.6 Disclosure of management fraud.

2.7 Monitoring the client’s regulatory conduct.

2.8 Fraud by employees.

A. Failure to carry out basic procedures.

B. Failure to recognise a client’s excessive reliance on a trusted employee.

C. General failure to recognise internal control weaknesses.

D. Inappropriate delegation of key audit tests.

E. Failure to follow up suspicious circumstances.

2.9 Using the company as an instrument of fraud by senior management.

F. Lack of independence.

G. Lack of resources.

H. Failure to obtain third party verification.

I. Improper reliance on management representations.

J. Risks of international affiliations and inappropriate reliance on the work of others.

K. Failure of analytical review.

L. Lack of awareness of risk.

M. The practice ethical problem.

N. Would any audit have picked this up?

2.10 Summary of key lessons.

3 Negligent Audit Work Not Involving Theft of Company Assets.

3.1 Introduction.

3.2 Fundamental auditing pitfalls.

A. Failure to carry out basic procedures.

B. Risks of undertaking work outside the scope of the auditor’s expertise.

C. Improper reliance on management representations.

D. Failure of analytical review.

E. Inadequate assessment of going concern.

F. Succumbing to client pressure.

G. Risks associated with group structures and entities under common control.

H. Risks inherent in subcontracting arrangements and joint audits.

I. Risks associated with disappointing acquisitions.

3.3 Summary of key lessons.

4 Professional Pitfalls for Accountants.

4.1 Importance of engagement letters.

4.2 Comparison with the USA.

4.3 Liability exposure to third parties.

A. Preparation of unaudited accounts.

B. Preparation of independent reports.

C. Counterclaims following pursuit of outstanding fees.

D. Dangers of administrative foul-ups.

E. Coping with clients whose record-keeping is chaotic.

F. Conflicts of interest.

G. Unwittingly becoming a shadow director.

H. Negligent certification of creditworthiness.

I. Vicarious liability following actions of consultants and staff.

J. Provision of advice outside the scope of an accountant’s expertise.

K. Accountants acting as trustees.

L. Allegations of negligent valuation.

M. The aftermath of disappointing acquisitions.

4.4 Summary of key lessons.

5 Tax Related Claims.

5.1 Introduction.

5.2 Provision of incorrect or inadequate advice.

A. Failure properly to investigate a client’s circumstances.

B. Danger of not keeping abreast of changing circumstances.

C. Failure to define responsibility following an engagement.

D. Consequences of giving casual advice that proves to be inappropriate.

E. Absence of advice may be negligent.

F. Danger of giving advice that falls outside one’s expertise.

5.3 Failed practice administration.

G. Failure of accountant to keep records of client contact.

H. Failure of internal systems within practice administration.

I. Know your partners. . . .

J. . . . and your employees!

5.4 Summary of key lessons.

6 The Disciplinary Framework.

6.1 Introduction.

6.2 Structure and procedures.

6.3 Costs.

A. Conflicts of interest.

B. Dangers of introducing clients to third party advisers.

C. Dangers of not keeping up to date.

D. Non-executive directorships.

E. Complaints from official sources.

F. How to respond to a formal complaint – the dangers.

6.4 Summary of key lessons.

Appendix: From the archives.

The astonishing story of the ’salad oil swindle’.

The Equity Funding story.

Glossary.

Index.