The New York state attorney general's office and the United States Securities and Exchange Commission have been investigating Tyco (a publicly owned company) and its audit firm. Dennis Kozlowski (the former chief executive officer), Mark Swartz (the former chief financial officer), and the former chief counsel (i.e., top lawyer who was an employee of the company) are all said to have received millions of dollars of money from the company, above the millions of dollars and buckets of shares and/or stock options which were approved by the company's board of directors on the advice of the board's compensation committee. According to news reports, Dennis Kozlowski personally transferred some of his own money to the head of the board's compensation committee, and also allowed that same individual to lease an aircraft from the company for one dollar per year. Consequently, one issue being investigated is whether any members of the board of directors were bribed. Beyond that one issue, the chief counsel received money from the company which was labeled as a "relocation loan," which he used to buy a fancy house in Utah. At various times, the company had executive offices in two states in the northeastern U.S., but nothing in Utah. One or both of Dennis Kozlowski and Mark Swartz received money labeled as relocation loans, and used it to construct a fabulous housing compound in Florida--but the company's headquarters were never in Florida. Payments to employees tend to show up in the payroll records under an employee's Social Security number and/or employee identification number. For reimbursements for travel expenses and other such items, an employee might also be set up as a vendor and be paid through the accounts payable system; those vendor ID numbers are usually alphabetized. Finally, someone might be paid through the issuance of a check request, but that also goes through the accounts payable system and the related vendor ID number. Thus, each of these three employees is likely to have had both an employee ID number and a vendor ID number, with all payments from the company to them being made under those two numbers, regardless of what general ledger account the payments wound up in. The SEC claims that those payments were not approved by the board and were not reported in any of the filings the company made with the SEC. The SEC claims that the individual auditors on the engagement had a duty to report this to the board, and that if the auditors did not know about this, then either the failure to know was willful or else the auditors were not competent to perform an audit. In any case, it seems that material information has been discovered which either the auditors did not know about, or did not correctly handle, when they rendered their opinion. Based on the price reaction in the company's securities, that information was clearly material to investors, and if Tyco paid company money by means of company checks, then clearly Tyco knew of the payments and should have reported them. Moreover, the payments were not correctly classified in Tyco's accounts, which violates the Foreign Corrupt Practices Act.

1. Does the audit firm 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.