Analysis
The following case study deals with the irregularities in the system of LDS Computers and how it is leading to possible cases of fraud and bribery in the system. The company works in the field of providing technology consulting services and to develop software’s. The company had provided services from several local and international branches (Abdullah & Said, 2017). In this case study we see how the irregularity in the system and lack of proper management had affected the company and how auditors can play an important part in overcoming these issues through their actions. It is seen that a whistle blower had led the authorities know that there might be chances of bribery and during investigation it was found that there were accounting irregularities have been present. It was found that quarterly financial statements of the company were misstated. It was found that there was disagreement between the board of the members regarding what the company should do. It was found that LDC needed to file its financial statements in two days. So, we see that overall there are chances of fraud in the system and that is affecting the development of the system. The auditor played an important part in finding the disagreements in the system. The management of the company was no ready to take these claims seriously and there only aim was to find that the system was working effectively and their compliance requirements were fulfilled even though the material misstatement could have effect on the going concern feature of the company (Belton, 2017).
In case of the internal system of the company it was found that there was a wide scope of issues involved and there were a lot of risks to be addressed given that the overall system was very complex and there were many such grounds on which the company could fail. Like we see that there were several customers in the system, on how they were regulating the system as there were several payment models that were present in the system. Due to this the interaction in the cloud was becoming very difficult (Boghossian, 2017). There were few models for the company to follow. Since the internal team was not small, it was getting difficult to manage the same and the aim was to have more team members was needed. In case of culture of the company it was found that the founder of the company Leduc was concerned only with the growth of the business and he was only concerned with high revenues and profits, he wanted that the managers should put in long hours, he always pushed his team and made sure that he never missed his deadline and that had affected the company on many grounds as the team was getting affected by that. The employees often felt that budget goals were unrealistic. This caused a lot of stress in the management of the company. The accounting team was overworked and that was affecting their feelings and because of that there might be irregularities in the accounting done by the company and affected how the financial statements were prepared and presented by the company. There were a lot of different payment options that the company had, and that was based on the customer’s needs and financial goals of the company. They delayed payment dues until the revenues started coming (Charles H, Giovanna, Dennis M, & Robin W, 2015). These accounting methods had made the overall system very complex. The organizational structure was also not stable, and it was seen that there were many issues involved as the founder Leduc was very controlling but not managing the company accordingly. When it came to compliance requirement the company was following the same as per a company in the technology filed but there were certain issues that the baseline level the company was not able to follow. So, we see that level of compliance is not easy to meet always given there are heavy pressure from the above (Coate & Mitschow, 2017).
Key Flags that needs to be presented in the system
After the bribery allegations it was found that the company wanted to hire an outside legal firm for carrying out the investigation of the company, but the owner Leduc did not want to spend that on any outside firm and recommended to hire an attorney from the same teams that they were working for. It was found during the investigation that there exists a mail, which read that the accounting data of the company was not always clear, and the data kept changing that was supporting the accounting operations of the company (Iggers, 2018). It was also found that the accounting people were having issues with the top-level people as they were having huge problems to deal with and were not ready to listen to the base line issues that the accounting executives faced. It was also found that there were 16 accounts that were materially misstated and the estimates for these accounts ranged from zero to few thousand dollars, it was also found that the largest item in the system had a range of $0.8million to $1.2million. The various accounts that were misstated included restricting events, revenues, contingent liabilities, inventory, payroll expenses, amortization etc. It was found that obsolete material was still there in the system, legal litigations were settled outside the court and expenses were charged to the company, the revenue recognition potential cut off from the future sales of the company. The accounting with respect to deferred tax assets and liabilities was not accounted properly. Even amortization was not calculated properly, and few more issues were also there. As per the investigation that all these accounts were materially misstated and that was having a negative impact on the accounts of the company and the financial statements that were presented by the company and how they were managed (Kaufmann, 2017).
Based on the overall findings the board should be recommended to manage their accounts of the company and reinstate the financial statements of the company so that in future the actions do not affect the potential growth of the company in the future. The overall findings had also shown that these were such matters that cannot be ignored by the company and they should try to change the same (Webster, 2017). They should also see to it that all the accounts should be properly reinstated, and the financial statements should also be reinstated accordingly because in case it is not done the company would be highly affected due to that. In case the financial statements are not instated these mistakes would be carried forward to the next year and the coming years also. It would make the company weak and in the future the company would suffer badly if they do not change the same now. So the board is recommended that strict action should be taken and changes should be made such that on all grounds the company does not suffer in the future and for that the accounts should be reinstated (Borit & Olsen, 2012).
The investigation was not handled in a very good way and it was seen that there the directors of the company did not give too much importance to the email and the accounting issues that were found. It was stated by them that all these accounts and the related dollar value associated with them was very low and thus it was not material, but together there were material, and this was stated by the auditors of the company. The director also stated that they do not have time for all this and the email did not state that the wrong doings on anyone part. The email was six months old and there might be the case that these matters have been already taken care of. They were not giving so much importance to the red flags that the auditor found. They decided that the quarterly report of the company should be held in the light of such emails and information and the FCPA should continue with their investigation and the accounting authorities should continue with preparation of the financials of the company and raising an opinion on the same. They said that the bribes are still not clear, and the fact that the managers are making their best efforts to move the work in Asia should be a point of concern and such issues should be ignored. So we see that on many grounds the management was a failure and there only aim was to meet the legal requirements to fulfil their compliance requirements even though they knew that the accounts were misstated and in future this will affect the going concern assumption of the company and the stakeholders will lose their believe in the company (Henriksen, 2018).
Materiality of Findings
In case we were the auditors of the company, based on the issues that were found and the way it was affecting the company, an adverse audit report would be issued to the management of the company, that would state the potential reasons behind the same and also state that there are high material misstatement in the accounts of the company because of which the company is not operational on many grounds and not managing their stuff properly. It was found that the directors were not taking actions to change the same and were not putting their efforts so that such issues can be reduced. Given the materiality level is so high there are chances that in future the going concern ability of the company might get affected and that won’t be correct as that would be wrong on part of the company and the stakeholders and hence an adverse opinion is given in the audit report of the company (Iggers, 2018). It should also be stated how the management of the company was not ready to take these claims seriously and only wanted to fulfil their obligations to complete the report. In case the financial statements are not instated these mistakes would be carried forward to the next year and the coming years also. It would make the company weak and in the future the company would suffer badly if they do not change the same now. So the board is recommended that strict action should be taken and changes should be made such that on all grounds the company does not suffer in the future and for that the accounts should be reinstated (Delone & Mclean, 2004).
Audit Report
To,
The board of Directors,
Based on the overall investigation and the audit procedures carried out it would be stated that the accounts of the company were materially misstated and that can influence the going concern ability of the company, thus an adverse opinion is being given by us on the same.
In best Regards,
Auditor.
In case we were part of the discussion in case of the bribery issue as a board of director of the company, the aim would have to change the situation in such manner that the financial statements of the company are not misstated and they are taking all the necessary potential to make sure that the email that was found is being taken seriously and the management of the company is taking necessary steps in that. It was found that company is managing on wrong grounds and that should be managed properly. The quarterly reports of the company should be held, and the accounts should be properly checked, proper investigation should be held by the company and efforts should be put in that all these issues should be changed. The company is facing many issues and the directors need to put in their best efforts to change that. Support should be provided to the FCPA investigation and after the investigation is completed the company should change the same and then the statements should be issued. People who are connected to the email must be summoned and they should be logically asked on what grounds these emails was sent off and how investigation should be done (Awasthi, Omrani, & Gerber, 2018). They should be asked on what grounds they have sent that mail and how they have changed the same and managed the same and what support they do require from the management of the company that can potentially help in improving their position. The FCPA should also be given all the support that they need to conduct the operations of the company with respect to investigation of the fraud (Wellmer, 2018).
Conclusion- Overall Group Opinion
Being in a group different member were having different opinions but management of the same was that group should reach to a census decision so that the level of disagreement should be low. It can also be seen that the members were ready to listen to each other but there were grounds on which they can be against each other but each of them wanted that the operations of the company should not be affected and all the issues that the materiality level are affected by should be handled accordingly and managed by the same. All the group members were having their own opinion but all of them reached to the same point that FCPA investigation should be conducted accordingly. The management of the affairs of the company is very important and that should be the primary aim of the board of directors and to remove any kind of misstatements that they see in the system. All the members were of the same opinion that first the issues should be resolved and then any actions should be taken with regards to fulfilment of compliance issue of the company and its peers. And if required the top management can also be charged for their course of action in the system.
References
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Belton, P. (2017). Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd.
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Charles H, C., Giovanna, M., Dennis M, P., & Robin W, R. (2015). CSR disclosure: the more things change…? Accounting, Auditing & Accountability Journal, 28(1), 14-35.
Coate, C., & Mitschow, M. (2017). Luca Pacioli and the Role of Accounting and Business: Early Lessons in Social Responsibility.
Delone, W., & Mclean, E. (2004). Measuring e-Commerce Success: Applying the DeLone & McLean Information Systems Success Model. International Journal of Electronic Commerce, 9(1).
Henriksen, L. (2018). Public orchestration, social networks, and transnational environmental governance: Lessons from the aviation industry. Regulation and Governance, 12(1), 23-45.
Iggers, J. (2018). Good News, Bad News: Journalism Ethics And The Public Interest.
Kaufmann, W. (2017). The Problem of Regulatory Unreasonableness (First ed.). New York: Routledge.
Webster, T. (2017). Successful Ethical Decision-Making Practices from the Professional Accountants’ Perspective. ProQuest Dissertations Publishing.
Wellmer, A. (2018). The Persistence of Modernity: Aesthetics, Ethics and Postmodernism (fourth ed.). UK: Polity Press.
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