QUESTION 1

'As she pursued the trail of fraud, Cooper was obstructed at every turn. In late May

2002, Cooper's team found a gaping hole in the books. The company had recorded

billions of dollars of regular fees paid to local telephone companies as capital assets.

This accounting trick allowed the company to turn a $662 million loss into a $2.4 billion

profit in 2001. The company's CFO, Scott Sullivan, called her to his office and asked her

what they were up to. He then asked her to delay her investigation to the following

quarter but she refused. In June 2002, the company announced that it had inflated assets

by $3.8 billion, the largest accounting fraud in history. When the investigation was

complete, the total amount of the fraud had grown to an astonishing $11 billion'

The story above, illustrates the importance of company controls and the role of auditors

in detecting fraud.

Sources: Susan Pulliam and Deborah Solomon, "Uncooking the Books: How Three

Unlikely Sleuths Discovered Fraud at WorldCom", The Wall Street Journal (October 30,

2002) p.A1.

Required:

(i) Differentiate the three types of audits which are Operational audit, Compliance audit

and Financial Statement Audit, performed by the External Auditors. Provide ONE (1) example and ONE (1) established criteria related to the example provided, for each type of audit.

(ii) Describe the role of the Securities Commission in society and discuss its relationship with and influence on the practice of Auditing.

(iii) Explain FIVE (5) duties of Audit Committees to enhance the corporate governance

in an organization.