Katharine Walls, CFA, works as an auditor for Pindale Accounting. She is concerned about Smith Fabrics, a company she audits. During her last visit to Smith Fabrics, the accounting director, Bob Fox, rudely ushered her into a tiny conference room with no telephone or computer, and gave her no key to the main accounting office. She was given only three days to finish what is normally a five-day job. Before he left Walls, Fox gave her a 150-page manual of Smith’s accounting policies for its various overseas divisions. After she finished her audit, Walls prepared a report for Pindale’s executive director, recommending that the firm drop Smith Fabrics as a client because she saw evidence of attitudes that could lead to fraudulent accounting. Walls cited three of Fox’s actions in her report, most likely leaving out: A) her rude welcome. B) the short deadline. C) the policy manual. D) her isolation from the accounting department.
a
c.
C? I feel - having been asked to read a policy manual does not show any attitude towards fraudulent behaviour
the way I thought about it is that having such a big manual would increase the likelyhood of fraud…
Your answer: A was incorrect. The correct answer was C) the policy manual. A strained relationship between the auditor and management is a sign of a company with an attitude that could lead to accounting fraud. Domineering behavior such as the rude welcome is a sign of that strained relationship, as is the unrealistic deadline and isolation from the accountants. But providing Walls with the policy manual was a good idea. The fact that the manual is 150 pages long bespeaks problems with the complexity of the company’s accounting, but that is not evidence of a bad attitude. As such, the manual is least relevant to Walls’ argument.