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Strategies & Market Trends : Value Investing
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To: ValueGuy who wrote (41855)3/19/2011 9:31:31 AM
From: Madharry   of 78787
 
this perhaps explains better my thoughts:

this was about ccme:

Here are two statements Beancounter from YMB wrote about the Deloitte cash issue:

1) I am having a problem with D&T's statement about the bank confirmation process. As a big four auditor for over thirty years I would say that confirmation of cash is the most basic part of the audit. You get independent verification from the banks involved at the audit date. You can also do a "proof of cash" by analyzing all of the sources of increases to the cash accounts, and the sources of distributions of cash from the cash accounts. While auditors do request representations from management as to certain things, I would hope that D&T wasn't just asking management to represent that the cash existed. The proof of cash would also send up a red flag if the company was borrowing funds off the books just to window dress the balance sheet. Why D&T couldn't do the forensic work on cash that they may have considered necessary just makes no sense. If you ever suspect fraud in a company, verification of the sources and uses of cash should be the primary focus of the audit! If D&T did insufficient work in 2009 to verify cash and the accuracy of the F/S, you would think they would step up and do the forensic work on their "own nickel"!! The conduct of D&T is a real mystery to me. I should think they have real liability on this issue. Even if there is massive fraud, there are plenty of examples where this has not sheltered the auditors from legal verdicts.

2) Cash confirmation is usually the first thing done in an audit. In fact the cash work is usually done at an interim date(ie. Oct-Nov.) and then again at year end. During interim you test the systems that support cash receipts and disbursements to determine if they can be relied upon. Assuming that cash is independently verified at year end, the auditors may have done additional work to review bank statements for the year to ascertain that there were not any large unusual increases in cash balances that didn't flow from accounts receivable or other normal operating transactions. In light of the allegations, such additional work should have been expanded beyond testing to a higher level of verification. To me this seems like basic audit work as opposed to hiring a forensic accountant. Frankly I would be embarassed as the primary auditor to admit that I couldn't verify cash to my satisfaction!

-Adam
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