Audit Sampling and Accounts Receivable
Question 1 KPMG was the auditor for Xerox Corporationbetween 1997 and 2000. During this time, approximately $6 billionof revenue was improperly classified and earnings were overstatedby approximately $2 billion. When the fraudulent conduct wasexposed, Xerox restated its financial statements and replaced KPMGas its auditor. KPMG paid $22.5 million to settle a lawsuit againstthe firm by regulators.
Research this accounting fraud on the Internet for furtherdetails on what occurred.
Required: Suppose that you are part of Xerox Corporation’s auditteam hired to complete 1997 to 2000 financial statement audits.
Do the following:
b) Discuss one procedure that the auditors (that is, you) couldhave performed that would have identified the fraud. Provide avalid procedure that the auditors could have performed that wouldhave identified the fraud. Explain the procedure and it must beclear about the following:
• what to test
• how to do the test
• why to do the test
• what relevant documents will be included in the test
• why the procedure makes sense in terms of identifying the fraudin the case
