The General Accounting Office prepared a report showing that many publicly-owned companies restated their financial statements during the period 1997 to 2001. Of course, they did not include happenings such as the situation reported in The Wall Street Journal, which told its readers that Qwest Communications (which owns one of the Bell telephone companies) had restated its prior financial statements four times from July 2002 to February 2003.

Assume that on one of the Sunday television news programs, whether Sunday morning as in Meet the Press or Sunday evening such as 20/20, an accounting professor was being interviewed.

"Hello, professor. Tell our viewers a little about yourself."

"I am Professor Blahblah. I am a certified public accountant, I am licensed to practice as a certified public accountant, I have an earned doctorate in accounting, and I presently teach auditing at the university level. Sometimes the department also has me teach a course in accounting information systems, which I teach as a way of designing accounting systems to provide information to decision makers."

"What do you think of this situation of Qwest restating its financial statements four times in seven months?"

"Oh, this is terrible. The management of Qwest had a duty to file audited financial statements with the SEC, and to provide those audited financial statements to each of the company's stockholders. Naturally, those financial statements were required to be truthful. The accounting firm which audited those financial statements had a duty to design its audit to assure itself that those financial statements were free of material misstatement, whatever the cause. If Qwest restated its financial statements four times in seven months, then as they say in law, res ipso loquitur, which means 'the thing speaks for itself.'" In other words, the very fact that the company restated its financial statements four times in seven months, and by material amounts each time, suggests that neither management nor the auditors did what they were obligated to do."

"Thank you, Professor Blahblah. Do you think our millions of viewers should know anything else?"

"Yes, I do. If management was making decisions based on those wrong numbers, then management probably made some bad decisions which they would not have made if they would have used correct numbers."

"Thank you very much, Professor Blahblah. Let's hope that none of our millions of viewers was among the people who suffered financially as a result of what management and the auditors did or failed to do."

1. Does the audit firm which gave clean opinions on those original sets of financial statements have any obligation to do anything now about those earlier audit reports? Cite the authoritative professional literature.

2. Design an audit program for asserted and unasserted claims against this client company. Cite the authoritative professional literature related to the claims, and show how your audit program fulfills your professional responsibilities.