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Like many auditors, Julie Jones, CPA, never really expected that one of her clients would actually experience a material fraud. However, she refused to be lulled into a false sense of security or relax her professional skepticism. A recent audit engagement demonstrated the wisdom of her approach. Jones's description of, and observations about, her unexpected experience follow:
Last year, my firm audited a privately owned lumber wholesaler with about $2.1 million in sales. The client had two locations in the state, one in town and a branch located in a city about 180 miles away. I stayed in town to do the audit at the main location and sent a staff assistant to the branch location for accounts receivable audit work. When the assistant returned after three days, I asked him if he had found anything. I was relieved when he replied he had not because we were under time pressure.
As I reviewed the customer accounts the assistant had selected for testing, I noticed an unusual one: a $90,000 credit to accounts receivable control, with an offset to the allowance for bad debts. The explanation read: "To adjust the general ledger to the accounts receivable trial balance at the branch." I...