False Assurance – Case Analysis
This case analysis relates to a short video titled: “FALSE ASSURANCE”. This video drama was produced by the Institute of Chartered Accountants England and Wales and aims to facilitate thought-provoking discussions about how accountants, auditors and company directors should act when faced with difficult situations.
The case revolves around a company called a fictitious company called D-Merton. TYSL Accountants are the external auditors of D-Merton.
Alex Frayn, the former Chief Financial Officer of, tells the story of two turbulent years in the life of that company. He explains how D-Merton faced serious issues as a result of the actions and decisions of its executive directors, its board of directors and possibly the auditors themselves.
Brought to life by a cast of well-known television and film actors, you will see how the main characters deal with a series of dilemmas and difficult problems they encounter during the film. The film splits into four parts.
INSTRUCTIONS:
- You are required to watch the “FALSE ASSURANCE” film which is approximately 30 minutes long, and
- Answer the following SIX questions. In doing so, please cite relevant sections of the Auditing standards and/or related regulations where appropriate.
Questions:
Person A
- Who is this man? What is his role?
- What is he responsible for?
- Who is he responsible to?
(1 mark)
Person B
- Who is this lady? What is her role?
- What is she responsible for?
- Who is she responsible to?
(1 mark)
Person C
- Who is this lady? What is her role?
- What is she responsible for?
- Who is she responsible to? (1 mark)
2. State the responsibilities of TYSL Accountants in relation to prevention and detection of frauds and errors in D-MERTON (2 marks).
3. Identify and briefly describe TWO inherent risks, and TWO control risks of D-MERTON and explain how TYSL Accountants have responded to each risk, in planning the audit of D-MERTON (4 marks).
4. Identify and explain THREE ethical issues which may affect the independence of TYSL Accountants’ audit of D-MERTON and for EACH issue explain how it might be reduced to an acceptable level. (3 marks)
5. How would the cancellation of the product, S1D system affect D-MERTON’s financial position and the year end audit plan of D-Merton? How will it affect the value of the company’s technology? (3 marks)
6. Do you believe that Sarah Hancock has exercised her duty of care as the audit partner?
- If your answer is YES, please explain your reasons.
- If your answer is NO, please explain reasons and what should she have done differently? (5 marks)
