(1) involved parties
Fred. Fmd Stem Company (FMD STEM) is engaged in rubber import and sales. Due to frequent lack of liquidity, it has to borrow from many banks and financial institutions, and declared bankruptcy on June 1925. Etmas is Fred? Fred, the lender of Worcester Company? Based on 1923, the company's balance sheet and its audit report are submitted to Fred? The company provided a loan of $654.38 million, and then issued two loans totaling $65,000. Touche has been working for Fred since 1920? Chester Company audits Fred? Worcester Company 1923 12 3 1 The balance sheet was issued with unqualified opinions.
(2) the truth
1923 end, Fred? Worcester Company is in a hopeless state of insolvency, but fictitious sales revenue and accounts receivable are 706,000 US dollars, and its net assets are reported as 6,543,800 US dollars.
(3) Audit issues
The sales revenue of 700,000 US dollars fabricated temporarily in February of 65438 has not been inquired and confirmed, and the attached 17 sales invoice lacks relevant information such as freight number and customer order number, so it can be seen at a glance that it is fake, and none of the sales business reflected actually happened.
A protracted legal dispute
At first, the jury in new york District Court found Etymas Company guilty of conspiracy to defraud, and then the judge in charge of the case in new york District Court overturned the jury's verdict, and then the New York Supreme Court supported the jury's arbitration by 3: 2. Finally, the higher court ruled that "overturning the jury's verdict" was correct, but it implied that the accusation of gross negligence might succeed. Seeing that the defeat had been decided, Dodge and Niven had to reach an out-of-court settlement with Etmas and agreed to pay compensation.
(1) The jury of new york District Court held that "when an old acquaintance and a good reputation have unquestionable doubts at the beginning, the analysis of these doubts will lead to doubt and distrust". (2) The judge in charge of this case in new york District Court emphasized that "unless negligence causes the defendant to be responsible for the damage relative to the plaintiff, it cannot be the reason for bringing a lawsuit. If the defendant's responsibility is not limited to the company, but extends to all people who may read and rely on the company's balance sheet, it is equivalent to forcing the defendant to bear a potential responsibility to the whole world. " (3) Mike Avi, a judge of the Supreme Court of New York, believes that "a firm cannot claim that it is not responsible for this after issuing an unqualified opinion. It is precisely because of the defendant's professional knowledge that banks and commercial institutions require independent accountants to issue qualified balance sheets and issue loans accordingly. They have the right to ask the firm to be reasonably cautious and professional when issuing audit opinions. " (4) Judge Finch of the Supreme Court of New York believes that "if the plaintiff has informed the auditors of Dodge Certified Public Accountants that they will issue loans according to the audit opinion, then the auditors will have the opportunity to estimate their responsibilities and risks, so that after confirming the responsibility for issuing this audit opinion, they can decide the degree of account review". (5) Benjamin, the presiding judge of a higher court? Cardoso basically agrees with Judge Finch. However, he pointed out that "if Ernst & Young designated Etmas as the beneficiary of the contract when signing the contract, then his judgment would not be like this", and hinted that if Etmas sued Dodge and Niven Accounting Firm for gross negligence, they might succeed.
(v) Significance and impact
It pioneered the responsibility of non-auditors, that is, professionalism, and promoted the change of audit report from "proof" to "opinion"
193 1 in July, Richardson made the following suggestions when discussing the influence of the case of Altemas Company on auditors and audit reports: it seems quite clear that each accountant's report is only provided to customers. Accountants should divide their reports into two parts, one is to solve the facts (that is, the scope of examination) and the other is to solve the opinions. Accountants should probably give up their certificates and just make reports. The word certificate, which has been used for many years, is quite inappropriate and should be abandoned under any circumstances, especially when opinions are involved. It is extremely absurd to prove a point. Perhaps, the Heurte Mas incident will be an opportunity to cause the report reform and delete the certificate and the wording of the certificate. Richardson's suggestion was realized in the American standard audit report originally established in 1934.
Second, mckesson Robbins Company incident
1938, Macpherson Robbins, a pharmaceutical company in new york, USA, suddenly declared bankruptcy. During the economic depression, it is common for joint-stock companies to close down. However, the collapse of the company made "the newspaper treat this case in a sensational way". The reason is that the case involves a series of problems in the audit procedure. (How do ordinary retail investors confirm the best operation opportunity)
Case background
At the beginning of 1938, Julian Thompson Company, which made a long-term loan to Robbins Medicinal Materials Company, found two problems when auditing the financial statements of Robbins Medicinal Materials Company: 1 The pharmaceutical raw materials department in Robbins Medicinal Materials Company was originally a department with high profit margin, but it was uncharacteristically and did not accumulate cash. In addition, liquidity has not increased. On the contrary, the department has to rely on the company manager to mobilize funds for reinvestment to maintain production. The board of directors of the company held a meeting and decided to ask the company to reduce its inventory. But by the end of 1938, the company's inventory had increased by1000000 USD. Thompson immediately said that it would not lend again until these two problems were identified, and asked the New York Securities and Exchange Commission, the authoritative organization that formally coordinated and controlled the securities market, to investigate the matter. Analyze the real purpose of mainstream funds and find the best profit opportunities! )
After receiving the request, the New York Securities and Exchange Commission immediately organized relevant personnel to investigate. The survey found that the company has hired a famous American accounting firm, Price waterhouse, to audit the company's financial statements every year for more than ten years. When reviewing the audit reports issued by these auditors, the auditors issued "correct and appropriate" unqualified audit opinions on the company's financial status and operating results every year. In order to verify the correctness of these audit conclusions, the investigators re-examined the financial status and operating results of 1937 company. The results show that the total assets of the consolidated balance sheet of193765438+February 3 1 are $87 million, but the assets of190.75 million are fictitious, including inventory10000, sales of $9 million and bank deposits of $75,000. In the consolidated income statement of 1937, the false sales revenue and gross profit reached182 million dollars and180 million dollars respectively.
On this basis, the investigators made a further investigation on the background of the manager of the company, and found that the manager of the company, Philip Koster, and his partner, Mirica, were both fraudsters with criminal records. They all use pseudonyms, sneak into the company, and climb to the management position of the company. They put their cronies in an important position in charge of the company's money and colluded with each other, making their fraud activities last for a long time without being discovered.
As soon as the Securities and Exchange Commission announced the results of the case investigation at the hearing, it immediately caused an uproar. According to the survey results, the actual financial situation of Robbins Medicinal Materials Company has long been "insolvent" and should be declared bankrupt immediately. Thompson Company is the first to suffer, because it is the largest creditor of Robbins Medicinal Materials Company. Therefore, Thompson Company sued waterhouse accounting firm. Thompson believes that it lent Robbins a loan because it trusted the audit report issued by the accounting firm. Therefore, they asked waterhouse accounting firm to compensate them for all their losses.
At the hearing, waterhouse accounting firm rejected Thompson's claim for compensation. The accounting firm believes that its audit follows the rules stipulated in the American Institute of Certified Accountants 1936 Review of Financial Statements. The fraud of the medicinal materials company is caused by the collusion of the management department, and the auditors are not responsible. Finally, under the mediation of the Securities and Exchange Commission, waterhouse Certified Public Accountants returned the audit fee of * * * 500,000 US dollars collected over the years as compensation for Thompson's creditor's rights loss.
Influence and enlightenment
The case of Robbins Medicinal Materials Company has had two impacts on the audit work:
1. Who is responsible for the authenticity of financial statements? If the audited financial statements are inconsistent with the facts, what responsibilities should the auditors bear? In this regard, the Audit Procedure Committee under the American Institute of Certified Accountants pointed out as early as 1936: "The main responsibility for financial statements should be the management of the enterprise, not the auditors." If the audited financial statements are inconsistent with the facts, the reasons for the inconsistency should be distinguished. When the internal control system fails due to collusion within the enterprise, even the most knowledgeable auditor can't find these frauds under the limitation of cost and time. Therefore, when John Bennett, the Attorney General of New York, held a hearing to accuse the auditors of the Robbins case, he was immediately refuted by the auditors. They said: "In most cases cited by the Minister of Justice, the audit problems involved are only the failure of human behavior itself, not the failure of universally followed procedures." Therefore, "American Institute of Certified Public Accountants still decided not to modify the statement of 1936 and continue to develop generally accepted auditing procedures". Therefore, the case of Robbins Medicinal Materials Company made auditors realize once again that auditing is risky. If this risk is caused by people inside the enterprise, then auditors should not be responsible for it. Secondly, auditors further realize that establishing scientific and strict recognized audit procedures and standardizing audit work can effectively protect conscientious auditors from unnecessary legal charges.
2. Conduct a comprehensive review of the current audit procedures. The case of Robbins Medicinal Materials Company also exposed the disadvantages of the audit procedure at that time: that is, only paying attention to account books and vouchers, ignoring physical inspection; Only pay attention to the internal evidence of enterprises and ignore the acquisition of external audit evidence. At the hearing of Robbins bankruptcy case, 12 expert's testimony listed these two shortcomings. Based on this evidence, the Securities and Exchange Commission promulgated new audit procedure rules. In the rules, the CSRC requires that in the future, when auditing accounts receivable, if accounts receivable account for a large proportion of current assets, in addition to checking relevant evidence within the enterprise, it is necessary to further send letters to obtain reliable and reasonable evidence from the outside. When evaluating inventory, in addition to checking relevant bills, we should also conduct on-the-spot inventory. In addition, auditors are also required to evaluate the internal control system of enterprises, emphasizing that auditors are responsible for public interests. At the same time, the Audit Procedure Special Committee under the American Institute of Certified Accountants promulgated the Audit Procedure Expansion Law (1939) in May, which made the above amendments to the audit procedure and made it a recognized audit standard.
In a word, the Robbins case not only accelerated the development of generally accepted auditing standards in the United States, but also laid a foundation for establishing the basic mode of modern American auditing and sampling auditing based on the evaluation of internal control system. Therefore, the audit case of Robbins Medicinal Materials Company has always been a hot topic in the research of American audit theory.
Three. * * * Events with Fund Management Limited
The audit case with the highest compensation in American history-Anderson Certified Public Accountants v. * * Datong Fund Management Co., Ltd. (its presiding firm, Anderson Certified Public Accountants, was finally awarded $80.79 million in compensation to the bankruptcy administrator of * * Datong Fund Management Co., Ltd., which is the audit case with the highest compensation made by an accounting firm in American history. Explain that the qualified audit report is a special report with a specific purpose. It refers to the conditional audit report adopted by certified public accountants in some unimportant aspects due to certain conditions or objective reasons in the process of auditing financial statements. It is completely different from not reporting knowledge or trying to avoid responsibility by not expressing one's position. Especially for some important accounting matters, if the conditions are limited and it is impossible to investigate, this conditional audit report cannot be used. So as not to mislead the users of audit reports. Therefore, the correct understanding and application of various forms of audit reports is one of the recognized auditing standards that certified public accountants must follow.