Care for Kids Inc.

Care for Kids Inc.

Facts

Care for Kids Inc. has many diversified investment portfolios.

The total investment of the company is $ 200 million approximately.

The investment portfolio consists of traded securities.

By $ 5 million, is increase in the market value of the traded securities.

The audit materiality was $ 10 million.

Issues

Following are the issues, which are found in the case of Care for Kids Inc.

The company committed errors in the adjusting entries at the year-end.

The company did not record unrealized profit of $ 5 million, which was unintentionally.

Applicable Laws and Pronouncements

The law, which is applicable from the statement of an auditing standard issued by AICPA, is SAS (115). The standard SAS (115) includes Verification and Review of General Ledger, Identity Management, Review of Payroll Expense, Invoice and Physical Inventory Review.

Analysis

The company, Care for Kids Inc. had issues in the adjusting entries which are made with the errors at the year end. The auditors of the company also pointed out that company did not record the unrealized profit of $ 5 million. This non-record of unrealized profit resulted in low taxes paid to the government. The audit standard SAS (115) is applicable in this case of the company. The standard includes the following:

During the external audit of the financial records, three types of control deficiencies may occur. Following are the types of deficiencies.

Deficiencies of Control

Deficiencies of Significant

Weaknesses of Material

It helps in evaluating the identified deficiencies severity.

An auditor is required who will communicated with the management in writing and charged with governance with any significant deficiency.

Indicators of a Material Weakness

The standard SAS 115 includes a deficiency list for internal control which indicates the weakness of material. The following is the list of indicators:

Fraud Identification, material or immaterial, from the senior management part;

Restatement of financial ...