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Kent, CPA, is the engagement partner on the financial statement audit of Super Computer Services Co . ( SCS ) for the year ended April

Kent, CPA, is the engagement partner on the financial statement audit of Super Computer Services Co.(SCS) for the year ended April 30,2011. On May 6,2011, Smith, the senior auditor assigned to the engagement, had the following conversation with Kent concerning the planning phase of the audit: Kent: Do you have all the audit programs updated yet for the SCS engagement? Smith: Mostly. I still have work to do on the fraud risk assessment. Kent: Why? Our "errors and irregularities" program from last year is still OK. It has passed peer review several times. Besides, we don't have specific duties regarding fraud. If we find it, we'll deal with it then. Smith: I don't think so. That new CEO, Mint, has almost no salary, mostly bonuses and stock options. Doesn't that concern you? Kent: No. Mint's employment contract was approved by the Board of Directors just three months ago. It was passed unanimously. Smith: I guess so, but Mint told those stock analysts that SCS's earnings would increase 30 percent next year. Can Mint deliver numbers like that? Kent: Who knows? We're auditing the 2011 financial statements, not 2012. Mint will probably amend that forecast every month between now and next May. Smith: Sure, but all this may change our other audit programs. know. May be have extend the tests. Or may we'll just report to the audit committee. Smith: What would they do? Green is the audit committee's chair, and remember, Green hired They've been best friends for years. Besides, calling all shots now. Brown, old CEO, on Board, Brown's never around. Brown's even been skipping the Board meetings. Nobody in management or on Board would stand to Mint. Kent: That's nothing new. Brown was that years ago. Brown caused frequent disputes with Jones, CPA, the predecessor years ago, Jones told how ineffective the internal Next thing you know, Jones out I'm in. bother? I'm just happy that those understaffed internal auditors don't get in our way. Just remember, the bottom line is... the financial statements fairly presented? And they always have We don't provide any assurances fraud. That's management's job. Smith: But what the lack segregation duties in cash disbursements department? That clerk could write cheque for anything. Kent: Sure. That's a material weakness every year and probably will again we're here, not We just have lots of testing on cash disbursements and report again. Smith: What about big lay offs coming up next month? It's more than a Even employees know going happen, and they're real uptight about it. Kent: know, the worst kept at SCS, we don't have consider that now. Even it happens, improve financial results. Brown should have let these people go years ago. Let's face how else can Mint even come close 30 percent earnings increase next year? REQUIRED a. Describe the fraud risk factors that are indicated in the dialogue above.

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