Reference no: EM133158903
Question -
1. Wirecard AG, a fintech company from Germany made a big scandal in history because of their fraudulent financial statements. Find the article about Wirecard AG scandal and analyze the case based on COSO internal control perspective. Give your suggestion to minimize another same scandal in the world!
2. Avenue Stars Inc. acquire assets from Headway Corp. An asset acquisition agreement requires Headway Corp to use the audit services of a public accounting firm to audit the company's financial statements. The purpose of this audit is to determine and ascertain whether the financial statements are presented by Headway Corp appropriately following applicable standards and no material misstatements. Headway uses the services of Hanson CPA to audit their financial statements.
When conducting the audit process, Hanson found out that the Headway's accountant had embezzled $700. Hanson has evidence of such embezzlement. But Hanson decided that $700 was immaterial, so further the possibility of other embezzlement related to this would not be further investigated. Hanson also did not discuss the matter with Headway's management. Unbeknownst to Hanson, Headway's internal accountant has embezzled a large amount of cash from Headway. In addition, the impacts of the accounts receivable become overstate significantly. Based on this, Hanson issued an independent auditor's report an unqualified opinion on audited financial statements to Headway.
Unbeknownst to Hanson, Avenue Stars Inc. needed funding to acquire the assets of Headway Corp., and Avenue Stars Inc. then provided copies of the audited financial statement to National Bank to obtain a loan fund. Based on Headway's audited financial statement, National Bank lent Avenue Stars Inc. a total of $750.000. Avenue Stars Inc. acquired the assets of Headway Corp. for $850.000. in just 6 months, Avenue Stars Inc. began to experience financial difficulties stemming from unknown embezzlement and inflation of account receivable. Avenue Stars Inc. then failed to pay the loan and interest to the National Bank. National Bank filed a civil suit against Hanson CPA based on the above incident.
Required -
a. What is the basis of the lawsuit charged by the National Bank to Hanson CPA?
b. According to your understanding, what has been done by Hanson CPA in this case, is considered negligence or fraud? Explain your reason!
c. If you are the auditor of Hanson CPA involved in this case, what will you do to defend yourself and go against the lawsuit in the civil court?