Audit Sampling and Accounts Receivable Question 1 KPMG was the auditor for Xerox Corporation between 1997 and...

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Accounting

Audit Sampling and Accounts Receivable
Question 1 KPMG was the auditor for Xerox Corporationbetween 1997 and 2000. During this time, approximately $6 billionof revenue was improperly classified and earnings were overstatedby approximately $2 billion. When the fraudulent conduct wasexposed, Xerox restated its financial statements and replaced KPMGas its auditor. KPMG paid $22.5 million to settle a lawsuit againstthe firm by regulators.
Research this accounting fraud on the Internet for furtherdetails on what occurred.
Required: Suppose that you are part of Xerox Corporation’s auditteam hired to complete 1997 to 2000 financial statement audits.
Do the following:
b) Discuss one procedure that the auditors (that is, you) couldhave performed that would have identified the fraud. Provide avalid procedure that the auditors could have performed that wouldhave identified the fraud. Explain the procedure and it must beclear about the following:
• what to test
• how to do the test
• why to do the test
• what relevant documents will be included in the test
• why the procedure makes sense in terms of identifying the fraudin the case

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3.5 Ratings (466 Votes)

solution The Xerox Corporation was under intense pressure from the shareholders to maintain and elevate its performance The underlying business model of the company was under threat and needed a fix so as to continue to be a sustainable and profitable business Instead blanket of some accounting tricks was put on poor performance During the time KPMG was the statutory auditor of the corporation tasked with ensuring and reporting to the shareholders that the accounts drawn up were free from any material misstatement and fraud Instead the firm turned a blind eye to all the creative accounting Fraud To keep up with the expectations of the Wall Street Xerox Corp was to enhance its performance by one way or the other It did this by a number of ways a Cookie Jar Accounting Cookie Jar Accounting is a method in which reserves are treated as a jar and these reserves are used whenever the operating performance of the company falls short of its expectations Extraordinary one time expenses were written of against these reserves avoiding a hit on the Profit Loss b Speeding up of Lease See Answer

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