Describe the risk factors at Computone that increased the likelihood of fraudulent financial reporting. Your response should make explicit reference to risk factors identified by PCAOB AU Section 316, Consideration of Fraud in a Financial Statement Audit.identify the fraud risk factor identified per the AU 316 definition, as well as the specific information from the case which led you to believe that factor existed at Computone.
Describe the company’s stated revenue recognition policy before 1998 and
after 1998. Your description should address the following questions:
(a) Was the pre-1998 policy itself consistent with GAAP and the additional guidance
subsequently offered in SEC Staff Accounting Bulletins No. 101/104?
(b) How did the two policies address consignment sales?
(c) How did the two policies address sales returns and allowances?
(d) Which of the two policies involved greater judgment on the company’s part?
Evaluate whether each of the revenue transactions described in the case is
in compliance with GAAP and the SEC Staff Accounting Bulletin No. 101/104. For each
transaction that is not, explain how it violates the guidelines. Reference the specific
question in SAB No. 101/104 that addresses the issue (if any) and describe how the
transaction violates authoritative guidance. In addition, indicate the specific type of audit
evidence that might have permitted detection. You may organize your response in a
chart format, with individual rows for each transaction and three columns: transaction
description, Violates GAAP and SEC Guidelines (should state yes or no and how you
came to this conclusion), and Type of Audit Evidence which may have Detected the
Error/Fraud. Example included below for one of the transactions:
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