D-Mertons Case Study

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Person A is Alex Frayn. He is the CFO at D-Mertons. He is responsible for determining and reporting the financial information of a company for the previous years as well as for the future as the accuracy and the timeliness of the report helps greatly in the decision making of the company for future decisions as well as ensure that the financial information has been properly maintained and shared with the shareholders so that they know what the financial situation of the company is. Being the right-hand man of the CEO, he usually is responsible to the CEO. Person B is Liz Harris. She is the Audit and Risk committee chair. Her role in the company is to assist the board in the areas of statutory reporting, risk management systems, internal and…show more content…
According the Auditing Standard ASA 240, Fraud is defined as an intentional act by one or more individuals among management, those charged with governance, employees or third parties, involving the use of deception to obtain an unjust or illegal advantage. Also according to the ASA 240, the main responsibility for the prevention and deduction of fraud is usually done by those charged with governance of the entity and management With that being said, an accountant conducting an audit in accordance with the ASA is responsible for obtaining reasonable assurance that the financial statements for D-Mertons is free from material misstatement, whether caused by fraud or error. Due to the limitations of an audit and even though an audit is planned and performed in accordance with the ASA, there may be an unavoidable risk that some of the misstatements may not even be detected. It is also the TYSL accountants job to ensure that, even after receiving reasonable assurances, they are responsible enough to maintain professional scepticism throughout the audit, considering the potential for management override of controls. Therefore, auditors often find that risk of not detecting management fraud is much higher than that of employee fraud as proven in False Assurances. Moreover, auditors must also be aware of the fact that the audit procedures for identifying errors and that for identifying fraud are different and hence must be vigilant when trying to differentiate between the…show more content…
In a company like D-Mertons, the transactions are very complex due to the nature of the business hence an inherent risk very likely to occur. From the video, it is proven that D-Merton is a company whose debts to equity ratio is very high which is usually accompanied by a high inherent risk which usually results in unstable earning due to various factors such as high interest. This is evident when the Board is discussing whether it will be possible for a complete overhaul. The board can be seeing raising issues of lack of funds and the lack of trust with the banks as well resulting in the loss of any option with the bank. The TYSL accountants here cannot react to this situation at that time as it was, presumably, already taken into account at the start of the fiscal year. Moreover, the video doesn’t specify any particular reaction from the accountants thus making my current answer an

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