unhealthy accounting at healthsouth essay
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1 . What are many red flags that EY both was or perhaps should have recognized in the taxation of HealthSouth? Overall, there was three warning EY had not been aware of through the audit. 1st, they neglected the 500% net income enhance from 1999-2001. This should have raised consciousness because revenues only increased by 5% during that same period. Second, the internal auditors were rejected access to a number of the corporate ledgers. EY should have seen this as being one of the largest warning flags. Third, the audit group failed to properly investigate staff complaints. 2 .
What types of procedures can auditors perform to detect deceitful entries made during the consolidation process? Quite often, fraudulent activity is found in error. It is not the auditors responsibility to find fraud, although they must determine internal procedures to establish if they are aligned with all the companys desired goals and needs. Precautionary measures for detecting fraud during the loan consolidation process happen to be applying ratios analyses, verification of a test of deals tracing unusual and unjustified entries near year-end, meeting with management, and analyzing further than the umbers through synthetic procedures.. How could auditors determine a companys true sculpt at the top? Auditors could determine a companys true tone at the top simply by performing, what some experts would call, a ethnical audit. This will entail executing on-site observations of every level of management. Several questions that may be discussed are as follows: What is the degree of preoccupation with meeting analysts anticipations within the firm? Are the investors and managers ideas and goals seite an seite?
An auditor could also evaluate the fear and pressure linked to meeting statistical goals and targets. When there is fear inside the workplace, after that lower level staff are going to be simpler to manipulate. Another factor to check into when identifying a companys ethical culture is the compensation and motivation plans for workers. These programs can alter an employees interpretation of right and wrong, thus causing fraudulent activity. 4. Precisely what is the appropriate response by auditors to information from disgruntled employees?
With respect to the severity in the fraud, the proper response can be different from organization to organization. A good way to detect fraud would be to listen to information disgruntled ahead of the fraud took place. The information being false and misleading because the employee provides held bitterness for a while. Regardless, you should take the information critically when it is 1st presented to you. 5. HealthSouth has sued EY, and EY is the target of the federal investments class action suit. Exactly what are EYs likely defenses against HealthSouth? Resistant to the class actions suit?
One of many defenses AT THEY took throughout the early stages with the HealthSouth go well with was the reality the SEC had zero well-defined rules with regards to audit-related practices. Another defense was the mere reality EY by no means faced a criminal indictment for the HealthSouth fraudulence. This was primarily due to the arrêté of limitations placed on securities fraud. That sets that at the earlier of (a) 2 years after the discovery from the facts constituting the violation or (2) 5 years after this sort of violation. Therefore, the DOJ was not able to file criminal charges up against the firm as the artner within the audit (G.
Marcus Neas) was unaware of the fraud in 93. 6. HealthSouth concealed the fraud by keeping the fraudulent transactions beneath $5, 000. What advice would you have to EY to enhance its testing practices? Although some, small ventures are overlooked due to restrictions set by auditors, EY must take a look at their materiality limits to be able to greater see potential dangers. Although many companies wont proceed below a $5, 1000 limit, At the could have taken advantage of by quite possibly examining some of the lower portions to see if there are any misstatements.