Analysis of the Audit Report Issued by the CPA Firm

Introduction

Diamond, a Food Company, based in San Francisco, together with two previous administrators were involved in accounting parody, in which they were deceiving the financial investors of the company. These individuals lied about the walnut expenditures to benefit their revenues.

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Securities and Exchange Commission stated that the Company's preceding CFO Steve Neill pioneered a plan to under-report the amount of cash the company had paid to Walnut manufacturers by pushing the records for the installments to future financial periods (Biegelman, 2013). By undertaking these devious acts, the company was able to report high net pay in this way thrashing detectives' requirements of the financial quarters finishing 2010 and 2011. Because of this plot, Diamond had to regurgitate its financial results for the year 2012. This, in turn, prompted a fall back in the cost of stock from 90 dollars in 2011 to 17 dollars in the year 2012.

The previous CEO, Michael Mendes, confirmed the company's cash-related public statement irrespective of the fact that they were financially prolonged. As the head of the project, he must have known about the false valuing by Walnut. From the misapprehension, much evidence was gathered against Mendes and the company; thus the company complied to repay 125,000 dollars as a penalty for resolving the case. Furthermore, reinforcements renounced the rewards valued more than 4 million dollars (Biegelman, 2013).

While performing its reviews, Diamond Foods ignored the underlying articulations of the GAAS, "Area 10(b) of the trade demonstration governs and segment 17(a) 1, 2 and 3."

Diamond Foods by implication or directly used the methods and instrumentalities for regional messages/trade in the offer or buy of securities. These instrumentalities were used in the following ways: First, employed duplicities, gadgets or tactics to fraud. Second, recorded false material declarations and facts, or ignored materials truths that are vital in putting forth expressions as per the statements under which they were prepared. Lastly, involved in business acts or doings that functioned as the extortion upon other persons, including the purchasers and sellers of securities.Thus, Diamond Foods broke "the area 10(b) and 17(a) of the Act," and unless limited or urged it shall proceed to trespass upon this law. Besides, the company also broke, "the 13(b)(2)(a) of the Exchange Act" that requires the ones responsible for securities protection to be registered and keep books and records. The records must be practical, refined elements, which reflect sensible and exact exchanges of plans resources characteristic (Biegelman, 2013).

Furthermore, the company ignored to devise and keep reliable frameworks for internal regulation of the records as stated in "area 13(b (2) (b) of the Exchange Act." Unless the company is charged and controlled, it will continue damaging these procurements.

The obligation lied on only a few parties, and this was because a large number of people were arrested. Since financial statements acts as a base for all financial information that appears in the organization's annual report, it thus becomes the responsibility of the management. Similarly, before their release, these financial statements need to have been reviewed and approved by the Board of Directors of the company. The role of the BOD is to ensure that the management attains its financial reporting duties.

The management is also responsible for preparing their financial statements according to (IFRS) International Financial Reporting Standards. Requirements of IFRS is that the administration has made particular assumptions and estimates, which are revealed in the financial statements and notes. It is the belief of the administration that the financial statements are a fair representation of the financial position, cash flows, and the outcomes of operations.

Likewise, they must develop a system of internal control, which is designed to offer reasonable assurance of the accuracy, and completeness of the financial statements in all aspects (Chenhall, 2015). This system is reinforced by an internal audit group, that includes communication with staff on the underlying policies for moral business conduct. Hence, the management has the mandate to ensure that these internal controls offer a reasonable guarantee that the financial records are reliable. Similarly, the administration has to form an appropriate basis for formulating financial statements, and that all the assets of the company are protected, and accounted for.

On the other hand, an ordinary audit in the company aims to ensure that the financial statements by the external auditor are expressed with an opinion of fairness (Knechel & Salterio, 2016). The aspect of fairness is broad since the financial statements should be fair in terms of; results of operations, cash flow conformity to the GAAP, financial position, and in all material aspects. So, the report of the auditor acts as a medium through which he or she expresses their opinions.

The auditor, therefore, has the responsibility to state whether the audit has been conducted per the Generally Accepted Accounting Principles. The auditor hence has the role of planning and performing the audit to attain reasonable guarantee on the condition of the financial statements. Another point is that the auditor has to make sure that the financial statements are free from fraud, or misstatement which might arise due to errors during preparation.

Other functions of an auditor include:

• Asset and liability verification through comparison of items to document
• Complete audit work papers through documentation of audit findings and tests
• Maintaining in-house controlling systems through regular updates of audit programs
• Communicating audit findings through a final report
• Complying with the state, local security, and federal requirements
• Preparation of special audits, and control reports.
• Maintain professionalism and technical knowledge
• Contributing to team efforts by achieving his or her objectives (Knechel & Salterio, 2016).

Thus, the management of Diamond Foods should bear greater responsibility in this case. This is because the administration knew what it was doing and it did not hesitate to shun from unethical activities. It is also clear that the administration of any company is familiar to the GAAP, and know the consequences of not adhering to these set standards. From my point of view, if the management is not keen while preparing the financial statements, the auditor might miss out on some crucial information thus leading to the misapprehension of the company's accounts.

From my opinion, the managers of Diamond Foods must express more concern over the irregularities experienced within their association. All the information that stimulates the misapprehension was initially from them. Also, Mendes was forefront in the whole misapprehension scheme. Mendes was charged for substantial underreporting of expenses arising while getting walnuts. Mendes overstated income by 23 million dollars in the year ending 2011.

Likewise, the management was responsible for maintaining adequate internal control frameworks, which would have ascertained precision in its records and books. The administration also ignored to execute measures to ensure precision on the reported costs of walnut, and the model of coordinating the walnut cost into currency correlated explanations.

Numerous sanctions have been laid out by the SOX rules for breach. The regulations incorporate suspension or renouncement of any organization. Second, suspension or banishment of an individual from connecting with other bookkeeping organization. Third, limiting the activities of a person or assert is connected with. Fourth, punishing the establishment a fine of up to 2 million dollars for each violation, and to the most an extreme penalty of 15 million dollars. Fifth, staff used by the registered organization who neglect the demonstration, may have to confront a fine ranging from 100,000 to 750,000 dollars for every breach. Thus, the sustenance's of Diamond Food must pay about two million dollars, and another five million dollars for settling the standard charge against itself as an organization, and its management team (Krishnan et al., 2016).

Conclusion

In conclusion, the "Public Organization Bookkeeping Oversight Board" was established under the famous "Sarbanes-Oxley Act of 2002." Stabling the board was one of the crucial mechanisms of the law. The PCOAB was majorly approved to aid in selecting and reviewing the bookkeeping principles for the general population accounting organizations (Krishnan et al., 2016). Additionally, the board was given mandate and responsibility to train and explore individuals linked to the breach of Federal Security Laws, which oversee the security and arrangement of review reports and other professional standards. As the PCOAB board was undertaking its obligations, the Security and Trade Commissions' authority was not reduced. The PCOAB attempts to arrange its requirements as a board, with those of the SEC ever since its establishment. The demonstration, therefore, considers each firm or company liable for its irregularities.

Reference

Chenhall, R. H., & Moers, F. (2015). The role of innovation in the evolution of management accounting and its integration into management control. Accounting, organizations and society, 47, 1-13.

Biegelman, M. (2013). Faces of Fraud Cases and Lessons from a Life Fighting Fraudsters. New York: Wiley.

Knechel, W. R., & Salterio, S. E. (2016). Auditing: Assurance and risk. Routledge.Krishnan, J., Krishnan, J., & Song, H. (2016). PCAOB international inspections and audit quality. The Accounting Review, 92(5), 143-166.