Reference no: EM132170399
KPMG's University Connection provides cases for higher education use. After watching the video above, read Case 2 - Pleasant Pasta and answer the questions below.
Case 2 - Pleasant Pasta
1. Based on your understanding of fraud risk assessment and the case information, identify at least three specific fraud risk factors related to Pleasant Pasta Company.
2. If you were responsible for planning the audit of Pleasant Pasta Company, how would the fraud risk factors identified in Question #1 have influenced the nature, timing, and extent of your audit work?
3. Please consider the five steps of the KPMG Judgment Framework. For each step, think carefully about what the auditors could have done to help detect the fraudulent activity related to the capitalization of trade promotion and manufacturing expenses at the Pleasant Pasta Company. Please use the following questions to guide your critical thinking about this case:
a. Clarify the issue and the objectives related to auditing whether certain trade promotion and manufacturing expenses should be capitalized by Pleasant Pasta. To do so, please ask yourself what specific problem needs to be solved by the auditor? What assumptions would have the biggest impact on the overall judgment to be made? How does this judgment relate to the overall audit process?
b. Consider the various alternatives that should be thought about when auditing whether certain trade promotion and manufacturing expenses should be capitalized at Pleasant Pasta. To do so, please ask yourself about each of the alternatives that are reasonably possible, even when they might contradict the client's point of view. Are there any external factors that should be considered?
c. Consider the type of information and evidence that should be gathered when completing the audit of the internal control activities related to the trade promotion and manufacturing expenses at Pleasant Pasta. To do so, please ask yourself about the type of information that would be helpful to determine whether the internal control activities were operating effectively. How can you be sure that the information is reliable? In addition, how can you be sure that the evidence is appropriate in this situation? Finally, what evidence could be gathered that might reveal that the internal control activities were NOT operating effectively.
d. Consider the type of information and evidence that should be gathered when completing the substantive testing procedures related to the trade promotion and manufacturing expenses at Pleasant Pasta. To do so, please ask yourself about the type of information that would be helpful to determine whether the trade promotion and manufacturing expenses were fairly stated in the financial statements. How can you be sure that the information is reliable? In addition, how can you be sure that the evidence is appropriate in this situation? Finally, what evidence could be gathered that might disconfirm your belief that the trade promotion and manufacturing expenses were fairly stated?
e. Consider the factors that would have to be thought about when reaching a final conclusion about the trade promotion and manufacturing expense accounts at Pleasant Pasta. Although you do not have access to the actual evidence, what "big picture" issues would have to be considered before reaching a final conclusion? Finally, what could possibly go wrong in this situation?
f. Consider the importance of documenting the rationale for your final conclusion. Why do you think it is important to document your rationale when finalizing your judgment? In addition, describe what is expected to be documented to support an auditor's professional judgment.
Attachment:- case-pleasant-pasta.rar
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