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Besides criticizing the audit procedures applied to accounts payable, the SEC challenged several
other facets of Touche Ross's 1972 audit of Giant Stores. Of particular concern to the SEC was the
extent of pressure that Touche Ross allowed Giant Stores' executives to impose on members of the
audit engagement team: "The audit was conducted under stressful conditions including a request
from Giant to Touche Ross to fire [the audit engagement partner], a Giant executive's threat to
throw one staff auditor off the premises and profane verbal abuse ot a sta-ff auditor from another
Giant executive" At one point during the audit, the bullying tactics of Giant Stores' executives and
the suspicious nature of the large year-end adjustments to accounts payable led one staff auditor to
suggest that the client was engaging in, and attempting to cover up, an accounting fraud- The audit
engagement partner chose to ignore the staff auditor ͛s speculation.

The SEC also charged that the Touche Ross audit engagement partner and a second part-ner who
assisted in completing the audit were too willing to compromise with client personnel. According to
the SEC, the two partners arrived at certain audit judgments ͟thr0ugh a trade-off and bargaining
process not conducive to appropriate audit decisions." This bargaining process was particularly
evident during a meeting between the partners and Giant Stores' executives that took place in April
1972, shortly before the completion of the 1972 audit. The purpose of the meeting was to
determine the final disposition of several questionable items that the Touche Ross auditors
identified during the audit.

During this meeting, Giant personnel continuously calculated earnings per sha re on a pocket
calculator. When the calculations reached Giant's reduced target earnings of $,83 per share, Giant
ceased to be contentious.

Collapse of giant stores

Giant·Stores filed its 10-K statement for the fiscal year ended january 29, 1972,with the SEC on April
28, 1972. The 10-K included an unqualified audit opinionissued by Touche Ross on Giant Stores'
financial statements. Later in the year,G-iant used those financial statements and the accompanying
audit opinion tohelp sell $3.mil-lion of additional stock and to raise $12 million of debt capital. ln an
April -1973 press release, the president of Giant Stores disclosed that ͟book¤l<eepi͚ng. errors" might
affect the companys reported profit for the_ prior year. Approximately one month later, Touche
Ross withdrew its unqualified opinion on Giant Stores' 1972 financial statements. In August. 1973,
Giant Stores filed · a bankruptcy peti.ti_on with a federal court in Boston. Two years later, that court
declared Giant insolvent and began liquidating th company.` The former president and vice
president of finance of Giant Stores were convicted-. in- 1-978 _of conspiracy to file false financial
statements with the SEC. Prior .`to those convictions, the former chairman and treasurer of Giant
Stores pleaded_ guilty to similar charges. Each of the four individuals was fined and given jail terms
ranging from 6 to 18 months. The SEC issued the final report on its lengthy investigation of the Giant
Stores' fraud in june 1979. As a result of that investigation, the SEC censored Touche Ross and
prohibited the Giant Stores' audit engagement partner from practicing before the federal agency for
five-months. The SEC also required Touche Ross to undergo an extensive review of its operating
procedures by a panel of independent experts. Exhibit 2 lists the specific operating procedures of
Touche Ross that the SEC instructed the independent panel to review.

3. Develop a statistical sampling plan that Touche Ross could have employed to test the material
accuracy of the $300,000 total of the 14Ͷpage listing of`purported advertising credits. ͚

4. Discuss the validity of audit evidence collected via telephone confirmations. Under what general
conditions is it- permissible for auditors to accept telephone confirmations?

5. How do accounts payable and accounts receivable confirmation procedures differ? Comment on
both technical differences and differences in audit objectives between the two audit tests. . _

6. During the 1972 audit of Giant Stores. differences of opinion arose between-the staff auditors
assigned to that engagement and the audit engagement partner regarding the material accuracy of
certain of the client's outstanding payables. How should such differences of opinion be resolved?
Was it appropriate for the staff auditors to include a memorandum in the audit workpapers that
questioned the validity of the disputed payables?

  
Tambahan kritik SEC tahun 1972 audit Touche Ross's Giant Stores

Selain mengkritik prosedur audit yang diterapkan untuk hutang, SEC menantang beberapa aspek
audit tahun 1972 Touche Ross's Giant Stores. Perhatian khusus kepada SEC adalah besarnya tekanan
yang Touche Ross memungkinkan eksekutif Giant Toko memaksakan pada anggota tim audit
keterlibatan: "Audit ini dilakukan dalam kondisi stres termasuk permintaan dari Giant ke Touche
Ross untuk api [audit keterlibatan] mitra, ancaman seorang eksekutif Giant's untuk membuang salah
satu staf auditor dari tempat dan ot pelecehan profan verbal auditor stasiun-ff dari seorang
eksekutif Giant "Pada satu titik selama audit, taktik bullying eksekutif Giant Toko dan sifat curiga dari
penyesuaian akhir tahun hutang besar untuk memimpin salah satu staf auditor untuk menunjukkan
bahwa klien itu terlibat dalam, dan mencoba untuk menutupi, sebuah penipuan akuntansi-Mitra
pengauditan spekulasi memilih untuk mengabaikan auditor staf '.

SEC juga menuduh bahwa Touche Ross audit keterlibatan mitra dan sebagian ner-detik yang
membantu dalam menyelesaikan audit itu terlalu bersedia untuk berkompromi dengan personel
klien. Menurut SEC, dua mitra tiba di penilaian audit tertentu "thr0ugh trade-off dan proses tawar-
menawar tidak kondusif untuk keputusan audit yang sesuai." adalah proses tawar-menawar ini
terutama terlihat pada pertemuan antara para mitra dan eksekutif Toko Giant 'yang berlangsung
pada bulan April 1972, lama sebelum penyelesaian audit 1972 Tujuan pertemuan tersebut adalah.
untuk menentukan disposisi akhir dari beberapa item dipertanyakan bahwa Touche Ross auditor
diidentifikasi selama audit.
Selama pertemuan ini, personil Giant terus dihitung laba per re sha pada kalkulator saku. Ketika
perhitungan laba mencapai target mengurangi Giant's sebesar $, 83 per saham, Giant berhenti
menjadi perdebatan.

Tutup toko raksasa

Giant ͻ Toko mengajukan laporan 10-K untuk tahun buku yang berakhir 29 Januari 1972, dengan SEC
pada April 28, 1972 10-K meliputi audit wajar tanpa pengecualian opinionissued dengan Touche Ross
terhadap laporan keuangan Giant Stores '.. Kemudian di tahun, G-Penjadwalan yang digunakan
dalam laporan keuangan dan opini audit atas tohelp menjual $ 3.mil-singa saham tambahan dan
untuk meningkatkan $ 12 juta modal utang. Pada suatu April -1973 siaran pers, presiden Giant
Stores diungkapkan bahwa "buku L ¤ <eepi'ng kesalahan ". mungkin mempengaruhi companys
melaporkan laba untuk the_ tahun sebelumnya. Sekitar satu bulan kemudian, Touche Ross menarik
pendapat wajar tanpa pengecualian pada 1972 Giant Toko laporan keuangan. Pada bulan Agustus.
1973, Giant Stores mengajukan ͻ kepailitan peti.ti_on dengan sebuah pengadilan federal di Boston
Dua tahun kemudian,. pengadilan yang menyatakan Giant bangkrut dan mulai melikuidasi
perusahaan th. `mantan presiden dan wakil presiden keuangan Giant Stores dihukum-in-1-978
konspirasi. _of ke file laporan keuangan palsu dengan SEC Sebelum.. `kepada mereka keyakinan,
mantan ketua dan bendahara pleaded_ Toko Giant bersalah atas tuduhan serupa. Ã  
 
  
  
 
      


     

    
         
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3. Mengembangkan rencana sampling statistik yang Touche Ross bisa digunakan untuk menguji
ketepatan bahan dari total sebesar $ 300.000 pencatatan 14-halaman `kredit iklan diakui."
4. Diskusikan keabsahan bukti audit yang dikumpulkan melalui konfirmasi telepon. Dalam kondisi
apa umum adalah hal-diperbolehkan untuk auditor untuk menerima konfirmasi telepon?
5. Bagaimana hutang dan piutang prosedur konfirmasi piutang berbeda? Komentari pada kedua
perbedaan teknis dan perbedaan dalam tujuan audit antara dua pengujian audit.
6 Selama audit 1972 dari Giant Stores.. Perbedaan pendapat muncul auditor antara-staf yang
ditetapkan kepada keterlibatan dan keterlibatan mitra audit mengenai akurasi materi tertentu dari
saldo hutang klien Bagaimana. perbedaan tersebut pendapat diselesaikan? Apakah itu tepat bagi
auditor staf untuk menyertakan sebuah memorandum di workpapers audit yang mempertanyakan
keabsahan hutang yang disengketakan?