FINAL CASE 1.10

1. There were many adjustments that were made in the original balance sheet to properly record overstatements made by DHB Inc. In the current assets, one major entry that was heavily overstated was inventory. Inventory went from $47,560,000 to $38,231,000. The difference of $47,742,000 is a material due to the magnitude of the difference.

Another material difference is deferred income tax assets that went from $483,000 to $19,094,000. Totaling a significant difference of $18,611,000.

Total current assets changed from $142,266,000 to $106,467,000. The majority of the differences of 35,799,000 came from the above.

Under current liabilities, two accounts that were significant were notes payable and income tax …show more content…

The quality of an audit might be impaired due to constant changes of auditors. The PCAOB requires auditors to file an 8K to show a disclosure and any reasoning why the change was brought. Auditors can also contact each other and discuss why an auditing team has been changed. This communication, found under AU 315, can help the new auditors focus on areas that the old auditors had problems with.

7. Auditors should take action on David Brooks when threatening remarks were made by contacting the audit committee, board of directors or legally. The independent auditors must do their due diligence on a job and not be influence by any threatening remarks made by top management.

8. The SEC was created to protect the investing public from self-interested corporate executives. The SEC mission is to “provide safeguard to potential investors, facilitate capital formation and to provide fair and transparent market system (sec.gov). Independent auditors also have the responsibility to protect the investing public. Audits are done so that users can rely on the financial statements in order to make their decision. AU Section 508 states, “Financial statements is presented fairly”. This independent audit report gives the user information in order to make their own independent judgment of a company based on their financial statement.

9. The primary responsibilities of a public company’s audit committee are to