The Financial Failure

Field & Co. Contends that the financial statements for Tyler Corp. Were prepared according to GAAP, thus, it should not be held liable for Slade's loss.

With respects to the specifics from the audit of Tyler's financial position by Field, the auditors did not follow their individual audit method requiring that confirmation requests be sent to a audit sample representing 80 percent of the total dollar quantity of accounts receivable. Confirmation responses had been received from creditors who represented only 20 percent on the total quantity of Tyler's reported outstanding accounts receivable. The Field partner in charge in the Tyler audit rejected a staff recommendation for further confirmation of Tyler's accounts receivable. Field had previously determined that a $300,000 account receivable reported by Tyler was nonexistent, and Tyler, at Field's request, eliminated the more than statement. Field, however, accepted Tyler's explanation to your overstatement of accounts receivable.

Verification with the genuineness of the client's accounts receivable normally is based on the written confirmation by creditors in the legitimacy with the accounts. Whilst one-hundred percent confirmation is not required, a confirmation ratio of a smaller amount than 60 percent just isn't regarded as being satisfactory. Further, the sampling of accounts receivable for confirmation need to cover all accounts with large balances, all accounts of bankrupt customers, all accounts inside the hands of attorneys or collectors, all disputed accounts, all past-due and inactive accounts, and a representative sample of all other accounts.

 

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