Audit Sampling and Accounts Receivable

Question 1 (9 marks) KPMG was the auditor for Xerox Corporation between 1997 and 2000. During this time, approximately $6 billion of revenue was improperly classified and earnings were overstated by approximately $2 billion. When the fraudulent conduct was exposed, Xerox restated its financial statements and replaced KPMG as its auditor. KPMG paid $22.5 million to settle a lawsuit against the firm by regulators.

Research this accounting fraud on the Internet for further details on what occurred.

Required: Suppose that you are part of Xerox Corporations audit team hired to complete 1997 to 2000 financial statement audits.

Do the following:

b) Discuss one procedure that the auditors (that is, you) could have performed that would have identified the fraud. Provide a valid procedure that the auditors could have performed that would have identified the fraud. Explain the procedure and it must be clear about the following:

what to test how to do the test why to do the test what relevant documents will be included in the test why the procedure makes sense in terms of identifying the fraud in the case