summary memos, accounting homework help

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  1. Requested AR confirmations from management of ContinuityX and management refused to prepare and sign the confirmations.
    1. EFP Rotenberg spoke to people acting as employees of Internet Providers (companies that owed ContinutyX). Audit team failed to obtain sufficient evidence on AR existence.
  2. SEC states: “EFP Rotenberg and Bottini did not plan or perform procedures to obtain sufficient appropriate audit evidence that ContinuityX’s revenue was legitimate or that it was being recognized correctly. During the ContinuityX Audit, EFP Rotenberg and Bottini obtained signed agreements between ContinuityX and the Internet Providers’ customers that showed that the customers who purchased internet services via ContinuityX did not intend to use or pay for the internet services. These agreements
    stated that the customers: (1) were not responsible for paying for the internet services they purchased from the Internet Providers; (2) ContinuityX was responsible for paying the Internet Providers for the customers’ monthly internet service bills; and (3) ContinuityX would pay the customers a one-time commission. In short, these agreements, when read in light of the agreements between ContinuityX and the Internet Providers, showed that ContinuityX would pay the customers a kick-back for purchasing internet services so that ContinuityX could earn a commission from the Internet Providers.”
  3. “EFP Rotenberg and Bottini failed to perform sufficient procedures to detect these fraudulent sales despite possessing all of the documents necessary to identify them”
  4. They also failed to design and perform substantive procedures to figure out of the revenue was actually earned.
  5. ContinuityX paid the Internet Providers security deposits for the customers, and then when the customers did not pay the Internet Providers used the security deposit to the past due balance. ContinuityX recorded these security deposits as assets of $2.1 million, when they should not have been recorded as assets. EFP Rotenberg did not plan or perform procedures to determine if ContinuityX had the rights to the security deposits.
    1. “During the ContinuityX Audit, ContinuityX’s management represented to EFP Rotenberg and Bottini that the security deposits held by Internet Provider A were ContinuityX’s assets. To support this assertion ContinuityX’s management
      provided EFP Rotenberg and Bottini with cashier’s checks drawn from ContinuityX’s bank account. However, the cashier’s checks had the customer listed as the remitter. EFP Rotenberg and Bottini accepted the cashier’s checks as evidence of ContinuityX’s ownership of the security deposits and did not question why ContinuityX was using cashier’s checks to pay security deposits
      or why a check drawn from ContinuityX’s bank would list the customer as the remitter. Furthermore, in an email correspondence with Internet Provider A, Bottini was told that Internet Provider A held the security deposits for the customers. EFP Rotenberg and Bottini failed to take further steps or perform additional procedures after being told by Internet Provider A that the security deposits were ContinuityX customers’ deposits, and not ContinuityX’s. EFP Rotenberg and Bottini failed to resolve inconsistencies in the audit evidence obtained to become reasonably assured that ContinuityX was properly recording
      the security deposits as assets.”
  6. “Based on the foregoing, EFP Rotenberg and Bottini’s did not plan or perform sufficient
    procedures to provide reasonable assurance of detecting illegal acts that would have a direct and material effect on the determination of ContinuityX’s financial statement amounts, as required by Section 10A(a)(1) of the Exchange Act. This was demonstrated by EFP Rotenberg and Bottini’s failure to obtain sufficient appropriate audit evidence that was responsive to the significant risks identified by the engagement team. Specifically,
    EFP Rotenberg and Bottini failed to perform sufficient alternative
    procedures after management refused to prepare accounts receivable confirmations.
    Furthermore, despite possessing information that contradicted management’s assertions, EFP Rotenberg and Bottini failed to resolve inconsistencies in the audit evidence. As a result, EFP Rotenberg and Bottini failed to identify ContinuityX’s improper revenue recognition and the inclusion of customer security deposits as
    company assets.”

summary each of those become six memo.

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