Edex Controls is a conglomerate with subsidiaries in extractive oil and gas, consumer
products banking and insurance industries. The company was organized in 1902 and began operations
as a mining company. as incorporated in New York in 1928, and it engaged in an initial public offering in
1948.
After becoming a publicly-owned entity, Edex expanded in its lines of business and in
the geographical areas in which it does business. Edex now does business in twenty-eight states and
twelve countries in Europe, Asia, Australia, Africa and South America. In 2018, Edex reported net
income of approximately $888 biiiion, which represented an increase of over $300 billion from the prior
year. The increase was primarily attributable to Edex's subsidiaries in the extractive industries which had
a "banner" year.
Edex's executives included the following individuals:
John Bonehead, President and Chief Executive Officer. Bonehead graduated from
Harvard University in 1965 with a BS in Sociology. After two years of service in the U.S.
Army, where he achieved the rank of Private First Class, Bonehead joined Extracta, an
Edex subsidiary in the gas extraction business, as an administrative assistant. Bonehead
worked in several areas and was appointed president in 1999.
Paul Rhino, Executive Vice President and Chief Operating Officer. Rhino graduated
from Indiana University of Pennsylvania with a degree in Geography in 1995. Rhino
began working in Edex's executive offices as a vice president immediately after
graduation in the role of vice president in charge of corporate events. Rhino married
Sandra during his fifth year at Indiana University. Sandra is the great
granddaughter of Edex's founder, and she owns approximately 20% of Edex's common
stock.
Angelina Jerky, Chief Financial Officer. Angelina graduated from in 1976 with a
degree in Nuclear Engineering. She received an MBA from Pace University in 1978.
Upon graduation from Pace, Angelina jointed Arthur Andersen as a staff auditor. She
left Andersen as a manager in 1982 to join Colorado Mining as the head of lnternai
Audit. She joined Edex in 1990, and she was promoted to CFO in 1998.
Ben Afflicted, Controller. Ben graduated from Boston University in 1982 with a degree
in Biology. After he failed out of Medical School in 1984, Ben pursued an acting career
which was terminated when he was admitted to a drug treatment facility. Ben's aunt is
Maxine Weirdo who owns approximately 11% of Edex's common stock, and who is also
8 member of Edex's Board of Directors. Maxine "pulled a few strings" on Ben's behalf.
Eden's Board at Uirectors is chaired by Bill de former Chief Executive of American
Turkey 84 '"anrt=ale ("AT&T"). Bill graduated from Cornell in 1961 with a degree in Hotei
Management, arid he spent his active working years in the food service industry.
Ruth Bader Goofball is chair of Edex's Audit Committee. Ruth graduated from st. John's
Law School in 1965, and after practicing as an attorney specializing in family law for
approximately 20 years was appointed a Family Court Judge. Ruth retired as a Judge in
2016.
Julia Louis Doofus is also a member of Edex's Audit Committee. Julia was a college
classmate of Ruth Goofball at St. John's. After college graduation, Julia attended NYU where
she received a PhD in Accounting. She has taught accounting at St. John's since receiving
her in addition to serving on Edex's audit committee, Julia serves as an accounting
consultant to Edex's controllership function for which she receives $100,000 per year.
Matt Dummy is the third member of Edex's Audit Committee. Matt is Edex's Marketing
Director, and he has held that position for the past fifteen years.
Frank Sinister is Edex's General Counsel. Frank graduated from Syracuse Law School in
1960, and he went to work in the Bronx D.A.'s office, where he spent the next seventeen
years as an Assistant District Attorney. He left the DA's office to accept Edex's offer to be
General Counsel.
Coopers Bloopers are Edex's auditors. are the only auditors which Edex
has had since becoming a "public entity".
Harvey Bizarre is audit Partner assigned to the Edex engagement. Harvey
purchased a home in East Hampton several years and for the last three years he has
spent most of his time there. He directs the audit from the beach via cell phone and
computer. When he is not actively working, he spends most of his time watching HBO &
CNN. Harvey will retire at the end of next year, and he believes that he should spend as
much time transitioning to retirement. Harvey is assisted on the Edex audit by partners in
Houston, Louisville, and Japan.
Johnny Dope is Engagement Quality Review Partner for the Edex
engagement. Dope has been a Partner for 22 years, all of which time has been spent in the
investment company practice. wants to expand Dope's experience by assigning Dope
as Edex's EQAR. Dope has no prior experience auditing publicly held companies
Some facts relating to the most recent Edex audit:
noted two control issues relating to improper separation of duties in the
revenue cycle. lt was a tough call, but Bizarre concluded that they represented
significant deficiencies and not material weaknesses.
There was a control weakness in the human resource area. Bizarre concluded that it
represented a significant deficiency. Dope disagreed and believed that it
represented a material weakness. Bizarre "pulled rank" and "officially" categorized
this weakness as a significant deficiency.
Bizarre concluded that a fraud "brainstorming" meeting was unnecessary as he
believed that Edex contained no fraud risks. Dope concurred in this conclusion, and
they both "signed off" on a memo to the workpapers documenting this decision.
The engagement team determined using non-statistical sampling methodology that
they would have to select a sample of 100 customers to be circularized to verify the
existence of accounts receivable balances. The accounts receivable consists of
approximately 16,000 customers. Approximately 300 customer balances are in
excess of $50,000 each, and approximately 9,000 balances are each below.$500.
The remainder of the balances are between $500 and $50,000. Doiiar values
attributable to each group are approximately as follows:
Over $50,000
S500- $50,000
Under $500
In selecting the accounts for confirmation, the auditors decided not to request
confirmations from any customer whose balance was under $500, as each individual
balance was not significant. Of the remaining customers, the auditors selected 70% of
the sample from those customers who balances were over $50,000 and 30% from those
customers whose balances were between $500 and $50,000. The auditors concluded
that this sample was representative.
Matt Dummy was the senior auditor entrusted with the responsibility of overseeing the
customer confirmation process and mailing them. Matt was running rate for his date
with Suzie Jacuzzi on the evening that the confirmation requests were to be mailed.
Yma Crook, Edex's accounts receivable supervisor, offered to mail the confirmation
requests on Matt's behalf. Matt readily agreed and was very happy to be able to meet
Suzie on time.
63customers of the responded to confirmation request on the first
mailing. sent "second requests" to the 37 customers who did not respond
customers responded to the second requests. All 96 customers who responded to the
confirmation requests acknowledged the indebtedness to Edex and confirmed as
correct the balances due as of year-end. The auditors could not obtain any confirmation
from the remaining four. Bizarre concluded that no additional work was necessary given
the results of the confirmation procedures relating to the 96 customers who responded
Dope concurred.
WT Gross was Edex's largest customer, and Gross owed Edex approximately
$15,000,000 at December 31. In January, 2019 it was announced that Gross was
insolvent. Edex's reserve for uncollectible amounts was approximately $5,000,000 at
December 31, 20181. Edex's position was that this event was a 2019 event and should
merely be disclosed in the 2018 financial statements. However, no loss should be
recognized in 2018. Bizarre and Dope concurred.
In December, 2018, Edex was served with a lawsuit claiming damages for environmental
offences which occurred during a twenty-five-year period. Damages of $1 Triiiion were
claimed. Frank Sinister performed a review of this matter, and he concluded that it was
too early to tell whether Edex would have any liability in this matter.
Sinister's "too early to tell" conclusion, Edex concluded that this matter had no financial
statement impact for 2018.
C and b concluded
The warehouse manager of Edex's Altoona, PA warehouse resigned in December, 2018
leaving in his wake a mass of organizational chaos. Bonehead asked not to perform
any audit procedures at this location as things are in a state of flux.
warehouse held approximately 14% of Edex's inventory. Bizarre and Dope concurred
Assignment
Prepare a paper noting what the audit issues are. You must be specific and provide
references to your conclusions.
In preparing your paper:
Note what the issues are
Point to the specific section of the auditing literature
Explain why the issue violates auditing standards or proper auditing procedures
Please prepare a 2 page paper typed audit report
fyocarch Project The des Chris sa cargomete with distractions, commar products, banking and more . The 250 r u pert I s the New Turci 1926, diterran e angin A w iedertry, es des instant and in the years in which has beesrex Fric t ions inter n wrinim , A ra Sour. Arven 2016 septent income al aperime n tieren has for $300 hlonfronter War The B oris Truidh a 'hear your dex'cuttings: Johstenchen N uorofficers audio Harvard Univers iti BS in B aretus sich in the US. Army, w we reach otherak PM Frutas. Tenhado atract, an Edes subsidiary in the second , the set Branch word in waralarsanal is appointed president 299 Pul Rhinn, Eesti - President and Operatin Tii na aduated fronta U rsity of Pennstrana with a deen Gophy 1995 Who hegan working in Eselnevelties as a n e w wadiation in the role of elemesident in charge of power win atd Sandra Dah curing his hearing University. Sandra's the great sranddaughter of dex's founder, the owns approximatel 20% of iden's cow Angelina Jerky, Chitranca Officer. Anewin wated from IT. I 1975 WAH degree in Nullar Ergreering, we received an M from Pic University in 1978 U radu ofro Poe, Angelracines Arthur Andersen asil or. She let Andersen as a manager in 1983 tocin Colorado Mining as the head of internal Aure. She joined desin 1993, and she was promotes e Coin 1998. investment company practice. C&B wants to expand Dope's experience by assigning Dope as Edex's EQAR. Dope has no prior experience auditing publicly - held companies. Some facts relating to the most recent Edex audit: C&B noted two control issues relating to improper separation of duties in the revenue cycle. It was a tough call, but Bizarre concluded that they represented significant deficiencies and not material weaknesses. There was a control weakness in the human resource area. Bizarre concluded that it represented a significant deficiency. Dope disagreed and believed that it represented a material weakness. Bizarre "pulled rank" and "officially" categorized this weakness as a significant deficiency. Bizarre concluded that a fraud "brainstorming" meeting was unnecessary as he believed that Edex contained no fraud risks. Dope concurred in this conclusion, and they both "signed off" on a memo to the workpapers documenting this decision. The engagement team determined using non-statistical sampling methodology that they would have to select a sample of 100 customers to be circularized to verify the existence of accounts receivable balances. The accounts receivable consists of approximately 16,000 customers. Approximately 300 customer balances are in excess of $50,000 each, and approximately 9,000 balances are each below $500. The remainder of the balances are between $500 and $50,000. Dollar values attributable to each group are approximately as follows: Over $50,000 $500- $50,000 Under $500 $ 90,000,000 32,000,000 4,000,000 $126,000,000 In selecting the accounts for confirmation, the auditors decided not to request confirmations from any customer whose balance was under $500, as each individual balance was not significant. Of the remaining customers, the auditors selected 70% of the sample from those customers who balances were over $50,000 and 30% from those customers whose balances were between $500 and $50,000. The auditors concluded that this sample was representative. 30 Matt Dummy was the senior auditor entrusted with the responsibility of overseeing the customer confirmation process and mailing them. Matt was running late for his date with Suzie Jacuzzi on the evening that the confirmation requests were to be mailed. Yma Crook, Edex's accounts receivable supervisor, offered to mail the confirmation requests on Matt's behalf. Matt readily agreed and was very happy to be able to meet Suzie on time. customers 63 of the accounts receivable responded to C&B's confirmation request on the first mailing. C&B sent "second requests" to the 37 customers who did not respond. 33 customers responded to the second requests. All 96 customers who responded to the confirmation requests acknowledged the indebtedness to Edex and confirmed as correct the balances due as of year-end. The auditors could not obtain any confirmation from the remaining four. Bizarre concluded that no additional work was necessary given the results of the confirmation procedures relating to the 96 customers who responded. Dope concurred. WT Gross was Edex's largest customer, and Gross owed Edex approximately $15,000,000 at December 31. In January, 2019 it was announced that Gross was insolvent. Edex's reserve for uncollectible amounts was approximately $5,000,000 at December 31, 20181. Edex's position was that this event was a 2019 event and should merely be disclosed in the 2018 financial statements. However, no loss should be recognized in 2018. Bizarre and Dope concurred. In December, 2018, Edex was served with a lawsuit claiming damages for environmental offences which occurred during a twenty-five-year period. Damages of $1 Trillion were claimed. Frank Sinister performed a review of this matter, and he concluded that it was too early to tell whether Edex would have any liability in this matter. Because of Sinister's "too early to tell" conclusion, Edex concluded that this matter had no financial statement impact for 2018. Bieerre wrote a meme to filles documenting the reason why No work was done at this loeation. 9B Conculled The warehouse manager of Edex's Altoona, PA warehouse resigned in December, 2018, leaving in his wake a mass of organizational chaos. Bonehead asked C&B not to perform any audit procedures at this location as things are in a state of flux. The Altoona warehouse held approximately 14% of Edex's inventory. Bizarre and Dope concurred. Assignment Prepare a paper noting what the audit issues are. You must be specific and provide references to your conclusions. In preparing your paper: . . Note what the issues are Point to the specific section of the auditing literature Explain why the issue violates auditing standards or proper auditing procedures Ben Afflicted, Controller. Ben graduated from Boston University in 1982 with a degree in Biology. After he failed out of Medical School in 1984, Ben pursued an acting career which was terminated when he was admitted to a drug treatment facility. Ben's aunt is Maxine Weirdo who owns approximately 11% of Edex's common stock, and who is also a member of Edex's Board of Directors. Maxine "pulled a few strings" on Ben's behalf. Edex's Board of Directors is chaired by Bill de Bozo, former Chief Executive of American Turkey & Tamale Co. ("AT&T"). Bill graduated from Cornell in 1961 with a degree in Hotel Management, and he spent his active working years in the food service industry. Ruth Bader Goofball is chair of Edex's Audit Committee. Ruth graduated from St. John's Law School in 1965, and after practicing as an attorney specializing in family law for approximately 20 years was appointed a Family Court Judge. Ruth retired as a Judge in 2016. Julia Louis Doofus is also a member of Edex's Audit Committee. Julia was a college classmate of Ruth Goofball at St. John's. After college graduation, Julia attended NYU where she received a PhD in Accounting. She has taught accounting at St. John's since receiving her PhD. In addition to serving on Edex's audit committee, Julia serves as an accounting consultant to Edex's controllership function for which she receives $100,000 per year. Matt Dummy is the third member of Edex's Audit Committee. Matt is Edex's Marketing Director, and he has held that position for the past fifteen years. Frank Sinister is Edex's General Counsel. Frank graduated from Syracuse Law School in 1960, and he went to work in the Bronx D.A.'s office, where he spent the next seventeen years as an Assistant District Attorney. He left the DA's office to accept Edex's offer to be General Counsel. Coopers & Bloopers ("C&B") are Edex's auditors. C&B are the only auditors which Edex has had since becoming a "public entity". Harvey Bizarre is C&B's audit Partner assigned to the Edex engagement. Harvey purchased a home in East Hampton several years ago, and for the last three years he has spent most of his time there. He directs the audit from the beach via cell phone and computer. When he is not actively working, he spends most of his time watching HBO & CNN. Harvey will retire at the end of next year, and he believes that he should spend as pos . much time transitioning to retirement. Harvey is assisted on the Edex audit by partners in Houston, Louisville, and Osaka, Japan. Johnny Dope is C&B's Engagement Quality Review Partner ("EQAR") for the Edex engagement. Dope has been a Partner for 22 years, all of which time has been spent in the fyocarch Project The des Chris sa cargomete with distractions, commar products, banking and more . The 250 r u pert I s the New Turci 1926, diterran e angin A w iedertry, es des instant and in the years in which has beesrex Fric t ions inter n wrinim , A ra Sour. Arven 2016 septent income al aperime n tieren has for $300 hlonfronter War The B oris Truidh a 'hear your dex'cuttings: Johstenchen N uorofficers audio Harvard Univers iti BS in B aretus sich in the US. Army, w we reach otherak PM Frutas. Tenhado atract, an Edes subsidiary in the second , the set Branch word in waralarsanal is appointed president 299 Pul Rhinn, Eesti - President and Operatin Tii na aduated fronta U rsity of Pennstrana with a deen Gophy 1995 Who hegan working in Eselnevelties as a n e w wadiation in the role of elemesident in charge of power win atd Sandra Dah curing his hearing University. Sandra's the great sranddaughter of dex's founder, the owns approximatel 20% of iden's cow Angelina Jerky, Chitranca Officer. Anewin wated from IT. I 1975 WAH degree in Nullar Ergreering, we received an M from Pic University in 1978 U radu ofro Poe, Angelracines Arthur Andersen asil or. She let Andersen as a manager in 1983 tocin Colorado Mining as the head of internal Aure. She joined desin 1993, and she was promotes e Coin 1998. investment company practice. C&B wants to expand Dope's experience by assigning Dope as Edex's EQAR. Dope has no prior experience auditing publicly - held companies. Some facts relating to the most recent Edex audit: C&B noted two control issues relating to improper separation of duties in the revenue cycle. It was a tough call, but Bizarre concluded that they represented significant deficiencies and not material weaknesses. There was a control weakness in the human resource area. Bizarre concluded that it represented a significant deficiency. Dope disagreed and believed that it represented a material weakness. Bizarre "pulled rank" and "officially" categorized this weakness as a significant deficiency. Bizarre concluded that a fraud "brainstorming" meeting was unnecessary as he believed that Edex contained no fraud risks. Dope concurred in this conclusion, and they both "signed off" on a memo to the workpapers documenting this decision. The engagement team determined using non-statistical sampling methodology that they would have to select a sample of 100 customers to be circularized to verify the existence of accounts receivable balances. The accounts receivable consists of approximately 16,000 customers. Approximately 300 customer balances are in excess of $50,000 each, and approximately 9,000 balances are each below $500. The remainder of the balances are between $500 and $50,000. Dollar values attributable to each group are approximately as follows: Over $50,000 $500- $50,000 Under $500 $ 90,000,000 32,000,000 4,000,000 $126,000,000 In selecting the accounts for confirmation, the auditors decided not to request confirmations from any customer whose balance was under $500, as each individual balance was not significant. Of the remaining customers, the auditors selected 70% of the sample from those customers who balances were over $50,000 and 30% from those customers whose balances were between $500 and $50,000. The auditors concluded that this sample was representative. 30 Matt Dummy was the senior auditor entrusted with the responsibility of overseeing the customer confirmation process and mailing them. Matt was running late for his date with Suzie Jacuzzi on the evening that the confirmation requests were to be mailed. Yma Crook, Edex's accounts receivable supervisor, offered to mail the confirmation requests on Matt's behalf. Matt readily agreed and was very happy to be able to meet Suzie on time. customers 63 of the accounts receivable responded to C&B's confirmation request on the first mailing. C&B sent "second requests" to the 37 customers who did not respond. 33 customers responded to the second requests. All 96 customers who responded to the confirmation requests acknowledged the indebtedness to Edex and confirmed as correct the balances due as of year-end. The auditors could not obtain any confirmation from the remaining four. Bizarre concluded that no additional work was necessary given the results of the confirmation procedures relating to the 96 customers who responded. Dope concurred. WT Gross was Edex's largest customer, and Gross owed Edex approximately $15,000,000 at December 31. In January, 2019 it was announced that Gross was insolvent. Edex's reserve for uncollectible amounts was approximately $5,000,000 at December 31, 20181. Edex's position was that this event was a 2019 event and should merely be disclosed in the 2018 financial statements. However, no loss should be recognized in 2018. Bizarre and Dope concurred. In December, 2018, Edex was served with a lawsuit claiming damages for environmental offences which occurred during a twenty-five-year period. Damages of $1 Trillion were claimed. Frank Sinister performed a review of this matter, and he concluded that it was too early to tell whether Edex would have any liability in this matter. Because of Sinister's "too early to tell" conclusion, Edex concluded that this matter had no financial statement impact for 2018. Bieerre wrote a meme to filles documenting the reason why No work was done at this loeation. 9B Conculled The warehouse manager of Edex's Altoona, PA warehouse resigned in December, 2018, leaving in his wake a mass of organizational chaos. Bonehead asked C&B not to perform any audit procedures at this location as things are in a state of flux. The Altoona warehouse held approximately 14% of Edex's inventory. Bizarre and Dope concurred. Assignment Prepare a paper noting what the audit issues are. You must be specific and provide references to your conclusions. In preparing your paper: . . Note what the issues are Point to the specific section of the auditing literature Explain why the issue violates auditing standards or proper auditing procedures Ben Afflicted, Controller. Ben graduated from Boston University in 1982 with a degree in Biology. After he failed out of Medical School in 1984, Ben pursued an acting career which was terminated when he was admitted to a drug treatment facility. Ben's aunt is Maxine Weirdo who owns approximately 11% of Edex's common stock, and who is also a member of Edex's Board of Directors. Maxine "pulled a few strings" on Ben's behalf. Edex's Board of Directors is chaired by Bill de Bozo, former Chief Executive of American Turkey & Tamale Co. ("AT&T"). Bill graduated from Cornell in 1961 with a degree in Hotel Management, and he spent his active working years in the food service industry. Ruth Bader Goofball is chair of Edex's Audit Committee. Ruth graduated from St. John's Law School in 1965, and after practicing as an attorney specializing in family law for approximately 20 years was appointed a Family Court Judge. Ruth retired as a Judge in 2016. Julia Louis Doofus is also a member of Edex's Audit Committee. Julia was a college classmate of Ruth Goofball at St. John's. After college graduation, Julia attended NYU where she received a PhD in Accounting. She has taught accounting at St. John's since receiving her PhD. In addition to serving on Edex's audit committee, Julia serves as an accounting consultant to Edex's controllership function for which she receives $100,000 per year. Matt Dummy is the third member of Edex's Audit Committee. Matt is Edex's Marketing Director, and he has held that position for the past fifteen years. Frank Sinister is Edex's General Counsel. Frank graduated from Syracuse Law School in 1960, and he went to work in the Bronx D.A.'s office, where he spent the next seventeen years as an Assistant District Attorney. He left the DA's office to accept Edex's offer to be General Counsel. Coopers & Bloopers ("C&B") are Edex's auditors. C&B are the only auditors which Edex has had since becoming a "public entity". Harvey Bizarre is C&B's audit Partner assigned to the Edex engagement. Harvey purchased a home in East Hampton several years ago, and for the last three years he has spent most of his time there. He directs the audit from the beach via cell phone and computer. When he is not actively working, he spends most of his time watching HBO & CNN. Harvey will retire at the end of next year, and he believes that he should spend as pos . much time transitioning to retirement. Harvey is assisted on the Edex audit by partners in Houston, Louisville, and Osaka, Japan. Johnny Dope is C&B's Engagement Quality Review Partner ("EQAR") for the Edex engagement. Dope has been a Partner for 22 years, all of which time has been spent in the
