Complete Case
\n6.5- Avis Love, Staff Accountant from the case book.
\nThe
\nwritten case analysis must be 5-7 pages in length, including APA
\nformat and include 6-7 scholarly citations\/references.
\nPrepare
\nthe case analysis using APA format.<\/p>\n
It
\nshould be complete plagiarism free other wise I will get zero and I want my
\nmoney back
\nThis case is based upon an actual series of events. Names and
\ncertain background information have been changed to conceal the identities of
\nthe individuals involved in the case.
\nCASE 6.5: Avis Love,
\nStaff Accountant
\n\u00e2\u0080\u009cOh no, not Store 51,\u00e2\u0080\u009d Avis Love moaned under her breath. For
\nthe third time, Avis compared the dates listed in the cash receipts journal
\nwith the corresponding dates on the bank deposit slips. Avis shook her head
\nsoftly and leaned back in her chair. There was no doubt in her mind now. Mo
\nRappelle had definitely held open Store 51’s cash receipts journal at the end
\nof October..vitalsource.com\/books\/9781337003100\/content\/id\/N583″>1
\n Avis Love was a staff accountant with the
\nAtlanta office of a large international accounting firm. Several months
\nearlier, Avis had graduated with an accounting degree from the University of
\nAlabama at Birmingham. Although she did not plan to pursue a career in public
\naccounting, Avis had accepted one of the several job offers she received from
\nmajor accounting firms. The 22-year-old wanted to take a two- or three-year
\n\u00e2\u0080\u009cvacation\u00e2\u0080\u009d from college, while at the same time accumulating a bankroll to
\nfinance three years of law school. Avis intended to practice law with a major
\nfirm for a few years and then return to her hometown in eastern Alabama and set
\nup her own practice.
\n For the past few weeks, Avis had been assigned
\nto the audit engagement for Lowell, Inc., a public company that operated nearly
\n100 retail sporting goods stores scattered across the South. Avis was nearing
\ncompletion of a year-end cash receipts cutoff test for a sample of 20 Lowell
\nstores. The audit procedures she had performed included preparing a list of the
\ncash receipts reported in each of those stores’ accounting records during the
\nlast five days of Lowell’s fiscal year, which ended 31 October. She had then
\nobtained the relevant bank statements for each of the stores to determine whether
\nthe cash receipts had been deposited on a timely basis. For three of the stores
\nin her sample, the deposit dates for the cash receipts ranged from three to
\nseven days following the dates the receipts had been entered in the cash
\nreceipts journal. The individual store managers had apparently backdated cash
\nreceipts for the first several days of the new fiscal year, making it appear
\nthat the receipts had occurred in the fiscal year under audit by Avis’s firm.
\n Avis had quickly realized that the objective
\nof the store managers was not to overstate their units’ year-end cash balances.
\nInstead, the managers intended to inflate their recorded sales. Before Avis
\nbegan the cutoff test, Teddy Tankersley, the senior assigned to the Lowell
\naudit and Avis’s immediate superior, had advised her that there was a
\nhigher-than-normal risk of cash receipts and sales cutoff errors for Lowell
\nthis year. The end of Lowell’s fiscal year coincided with the end of a
\nthree-month sales promotion. This campaign to boost Lowell’s sagging sales
\nincluded bonuses for store managers who exceeded their quarterly sales quota.
\nThis was the first time that Lowell had run such a campaign and it was a modest
\nsuccess. Fourth-quarter sales for the fiscal year just ended topped the
\ncorresponding sales for the previous fiscal year by 6 percent.
\n When Avis uncovered the first instance of
\nbackdated cash receipts, she had felt a noticeable surge of excitement. In
\nseveral months of tracing down invoices and receiving reports, ticking and
\ntying, and performing other mundane tests, the young accountant had
\noccasionally found isolated errors in client accounting records. But this was
\ndifferent. This was fraud.
\n Avis had a much different reaction when she
\nuncovered the second case of backdated cash receipts. She had suddenly realized
\nthat the results of her cutoff test would have \u00e2\u0080\u009creal world\u00e2\u0080\u009d implications for
\nseveral parties, principally the store managers involved in the scheme. During
\nthe past few months, Avis had visited six of Lowell’s retail stores to perform
\nvarious interim tests of controls and to observe physical inventory procedures.
\nThe typical store manager was in his or her early 30s, married, with one or two
\nsmall children. Because of Lowell’s miserly pay scale, the stores were
\nchronically understaffed, meaning that the store managers worked extremely long
\nhours to earn their modest salaries.
\n No doubt, the store managers who backdated
\nsales to increase their bonuses would be fired immediately. Clay Shamblin,
\nLowell’s chief executive officer (CEO), was a hard-nosed businessman known for
\nhis punctuality, honesty, and work ethic. Shamblin exhibited little patience
\nwith subordinates who did not display those same traits.
\n When Avis came to the last store in her
\nsample, she had hesitated. She realized that Mo Rappelle managed Store 51.
\nThree weeks earlier, Avis had spent a long Saturday afternoon observing the
\nphysical inventory at Store 51 on the outskirts of Atlanta. Although the Lowell
\nstore managers were generally courteous and accommodating, Mo had gone out of
\nhis way to help Avis complete her tasks. Mo allowed Avis to use his own desk in
\nthe store’s cramped office, shared a pizza with her during an afternoon break,
\nand introduced her to his wife and two small children who dropped by the store
\nduring the afternoon.
\n \u00e2\u0080\u009cMo, what a stupid thing to do,\u00e2\u0080\u009d Avis thought
\nafter reviewing the workpapers for the cutoff tests a final time. \u00e2\u0080\u009cAnd for just
\na few extra dollars.\u00e2\u0080\u009d Mo had apparently backdated cash receipts for only the
\nfirst two days of the new year. According to Avis’s calculations, the backdated
\nsales had increased Mo’s year-end bonus by slightly more than $100. From the
\nstandpoint of Lowell, Inc., the backdated sales for Mo’s store clearly had an
\nimmaterial impact on the company’s operating results for the year just ended.
\n After putting away the workpapers for the
\ncutoff test, a thought dawned on Avis. The Lowell audit program required her to
\nperform cash receipts cutoff tests for 20 stores \u00e2\u0080\u00a6 any 20 stores she selected.
\nWhy not just drop Store 51 from her sample and replace it with Store 52 or 53
\nor whatever?
\nEPILOGUE
\nAvis brooded over the
\nresults of her cutoff test the remainder of that day at work and most of that
\nevening. The following day, she gave the workpaper file to Teddy Tankersley.
\nAvis reluctantly told Teddy about the backdated cash receipts and sales she had
\ndiscovered in three stores: Store 12, Store 24, and Store 51. Teddy
\ncongratulated Avis on her thorough work and told her that Clay Shamblin would
\nbe very interested in her findings.
\n A few
\ndays later, Shamblin called Avis into his office and thanked her for uncovering
\nthe backdated transactions. The CEO told her that the company’s internal
\nauditors had tested the year-end cash receipts and sales cutoff for the remaining
\n72 stores and identified seven additional store managers who had tampered with
\ntheir accounting records. As Avis was leaving the CEO’s office, he thanked her
\nonce more and assured her that the store managers involved in the scam \u00e2\u0080\u009cwould
\nsoon be looking for a new line of work \u00e2\u0080\u00a6 in another part of the country.\u00e2\u0080\u009d
\nQuestions
\n\u00c2\u00b7
\n1. Would it have
\nbeen appropriate for Avis to substitute another store for Store 51 after she
\ndiscovered the cutoff errors in that store’s accounting records? Defend your
\nanswer.
\n\u00c2\u00b7
\n2. Identify the parties
\npotentially affected by the outcome of the ethical dilemma faced by Avis Love.
\nWhat obligation, if any, did Avis have to each of these parties?
\n\u00c2\u00b7
\n3. Does the
\nAICPA’s Code of Professional Conduct prohibit auditors from
\ndeveloping friendships with client personnel? If not, what measures can
\nauditors take to prevent such friendships from interfering with the performance
\nof their professional responsibilities?
\n\u00c2\u00b7
\n4. Identify the key
\naudit objectives associated with year-end cash receipts and sales cutoff tests.
\n\u00c2\u00b7
\n5. What method would
\nyou have recommended that Avis or her colleagues use in deciding whether the
\ncutoff errors she discovered had a material impact on Lowell’s year-end
\nfinancial statements? Identify the factors or benchmarks that should have been
\nconsidered in making this decision.<\/p>\n","protected":false},"excerpt":{"rendered":"
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