Happiness Express, Inc. Essay
Happiness Express, Inc.
The primary audit objectives that auditors hope to accomplish by confirming the client’s year-end accounts receivable are if the purchaser is real and confirms the balance (existence) and that the transactions that should have been were recorded correctly (completeness). Since confirmations go outside the firm being audited and ask the customers or vendors to confirm or deny amounts that the company is reporting, they also give valuation. The confirmation process lets the auditor figure out if a client even exists and if the correct balances were recorded. The objectives for performing year-end sales cut-off tests is to ensure the transactions are recorded in the correct accounting period (timing/cutoff) and that all the recorded transactions should have been recorded and actually took place (completeness/occurrence). Mistakes or errors in judgment that Coopers & Lybrand may have made in trying to confirm the Wow Wee in 1995 receivable were notifying Michael Goldman that they were going to seek confirmation from Wow Wee, allowing Goldman to do the follow up contact with Wow Wee when the confirmation wasn’t returned, and not doing any follow-up procedures when they finally did receive a conformation from Wow Wee, which ended up being fabricated by Goldberg.
I think these mistakes and errors definitely involve negligence in the part of the auditor for over involving Goldberg in the process of confirming Wow Wee’s accounts. I also believe they were reckless because there seems to be no professional skepticism at play. Wow Wee being a toy manufacturing, not responding to their confirmation requests, and having large orders near the year end did not being enough to signal to the auditors that something suspicious is happening is pure recklessness. Even if it did not seem like fraud simply relying on a faxed confirmation was over and beyond negligence. Coopers and Lybrand auditors should have confirmed West Coast Liquidators’ receivables because they accounted for about 13% of Happiness Espress’s accounts receivable and a confirmation would have been the proper way to ensure the existence of those accounts.