Valley Finance Company opened four personal loan offices in neighboring cities on January 2. Small cash loans are made to borrowers who repay the principal with interest in monthly installments over a period not exceeding two years. Ralph Norris, president of the company, uses one of the offices as a central office and visits the other offices periodically for supervision and internal auditing purposes.

Required:

Assume that you agreed to audit Valley Finance Company’s financial statements for the year ended December 31. No scope limitations were imposed.

a. How would you determine the scope necessary to complete your audit satisfactorily?
Discuss.

b. Would you be responsible for the discovery of fraud in this audit? Discuss.