Writing assignment of auditing - Essay Example

Auditing: Peregrine: Twenty Years of Fraudulent Cash The U.S. Auditing standards board requires that all public companies be audited by public auditors under its standards as outlined in its booklet titled ”Generally accepted auditing standards. Under the standards, the firms must not use the services of internal auditors and if any, they must only carry out internal audits that must then be audited by external auditors. All cash balances must then be audited by the team for the interests of shareholders as well as the government.

All the cash balances are presented chronologically in the balance sheet which must then be balanced at the end of the accounting period. In my opinion, I think it is appropriate that the cash balances are confirmed under the U.S. Auditing standards. This is mainly because cash amounts are the most liquid part of the business and can easily be stolen from the firm or misrepresented (Kieso 77). Moreover, it could be termed as a control measure to ensure that no cash is lost between the time of recoding and auditing.

It may also be trick especially because businesses are in operations whereby the cash balance is expected to vary with business activities. The procedure for cash balances auditing may be a bit different as compared to other forms of audits yet so closely related. The first step is to identify the main purpose of the cash audit; which in this case is to ensure that the balances indicated in the cashbook correspond to the cash balances. This is to ensure than no cash is lost between the time of recording on the balance sheet and the time of auditing the records.

The second step is taking into consideration the relevant developments for the cash account. Such developments could be as a result of sales or expenditure among other things. Finally the audit process is conducted to ensure that the balance is consistent. Finally, bank reconciliation may or may not be made. The cash account is one that is under constant risks. To start with, being the most liquid asset, cash can easily be stolen from the company by either the workers or the management. Moreover, it is more likely to be misrepresented due to the fact that it is constantly changing.

When controlling cash related risks, caution is taken to avoid confusion with the bank account. More often than not, some transactions are conducted using both accounts and often recorded as one. Additionally, proper planning must be taken into consideration to avoid any risks that might occur in the process (Kieso 77). These risks can be classified into the fraud triangle which has opportunities and rationalization on the sides and pressure at the bottom. In the case of peregrine, pressure could have been from the audit team sent by the Natural Futures Association while opportunities and rationalization can be traced from the business environment (Commissioner Bart Chilton of the Commodity Futures Trading Commission 4).

However, with the tone at the top of the impact, everything changed and the strategy for carrying out fraud changed significantly. Everything changed negatively for peregrine. Confirmation of accounts receivables is another controversial matter in U.S auditing standards. I believe that confirmation of cash and account receivable balances should be required by international auditing standards for consistency and standardization purposes. Considering that peregrine was audited by a one person firm, this could have lead to failure to detect the fraud as a result of incompetence or biasness.

Additionally the auditor could have had the intentions of hiding the frauds from the public. The fraud was revealed when regulators moved to electronic confirmation of bank balances; some of the advantages linked with electronic conformation include error detection and arithmetic accuracy among others. However, it also has its disadvantages for instance it is prone to break down and inability to work in absence of power. Electronic confirmation of cash balance may be necessary but not essential.

The records could be subjected to scrutiny under an electronic system before being confirmed as correct records. It is also worth noting that standard bank confirmations could have detected fraud at peregrine if only they were careful enough. However, electronic systems may not be used independently as they are prone to breakdown or maybe hacked. In such an event the manual system should take charge with a lot of caution. In addition, there should be an insurance plan to cater for events such as complete failure.

ReferenceCommissioner Bart Chilton of the Commodity Futures Trading Commission Peregrine: Twenty Years of Fraudulent Cash Balances, Commissioner Bart Chilton of the Commodity Futures 2012Kieso, Donald E., Jerry J. Weygandt, and Terry D. Warfield. Intermediate accounting. 14th ed. Hoboken, NJ: Wiley, 2012. Print.