Homework Assignment On Navistar And Diamond Foods Cases ✓ Solved

Homework Assignment on Navistar and Diamond Foods Cases with Analysis

Read the assigned case, answer the questions in the textbook, and create one multiple choice question (no true/false accepted) with four answer choices. Include the correct answer. Use your own words when completing the homework assignments. Write in organized paragraphs with complete sentences. Do not use bullet points or direct quotes. Paraphrase case information rather than copying to maintain originality and avoid high similarity scores from Turnitin. The homework should be at least 300 words, excluding the multiple choice question and answers. Indicate the word count at the top of your submission.

Sample Paper For Above instruction

In analyzing the Navistar International case concerning the Deloitte audit, it is critical to evaluate whether the audit failed based on the ethics rules of conduct outlined by the American Institute of Certified Public Accountants (AICPA). The AICPA emphasizes integrity, objectivity, professional competence, and due care in conducting audits. In this case, Navistar's financial statements raised questions about the effectiveness of Deloitte’s audit and whether they fulfilled their ethical responsibilities. Evidence suggested deficiencies in internal controls, weak corporate governance, and possible oversight in detecting management’s questionable accounting practices, indicating potential limitations rather than outright failure of the audit (Beasley et al., 2019).

Regarding internal controls, Navistar displayed significant deficiencies, including inadequate oversight and internal risk management systems. Such weak controls can obscure fraudulent activities, making it arduous for external auditors like Deloitte to detect underlying fraud, especially when internal personnel lack training or expertise. External auditors are expected to exercise professional skepticism and to evaluate whether financial statements accurately reflect the company’s financial position. However, in cases of poor management oversight, auditors' ability to detect fraud or misstatements diminishes, raising the question of whether auditors can be held fully accountable when internal controls are fundamentally deficient (Crumbley, 2018). Nonetheless, auditors are responsible for performing diligent procedures and expressing an opinion based on audit evidence obtained, which in this case, appears to have been compromised by inadequate internal processes.

The PCAOB (Public Company Accounting Oversight Board) conducts inspection of audit firms to ensure compliance with ethical and professional standards, emphasizing the importance of independence, objectivity, and thorough audit procedures. This inspection process acts as a safeguard, encouraging auditors to uphold high standards and placing public interest above all else (PCAOB, 2022). It aims to detect deficiencies in audit quality, promote corrective actions, and reinforce ethical responsibilities among auditors. Regular inspections serve as a deterrent against negligence, enhancing trust in the external audit process and safeguarding stakeholders’ interests.

Turning to the Diamond Foods case, the application of the Fraud Triangle—pressure, opportunity, and rationalization—is crucial for understanding the accounting fraud. The company faced intense sales targets and performance pressures, which fostered an environment conducive to manipulating financial data to meet expectations (Albrecht et al., 2017). The opportunity arose from weak internal controls and lack of oversight, allowing management to record inaccurate payments to walnut growers. The rationalization likely involved a desire to maintain stock prices and investor confidence, which can be justification for unethical behavior.

Diamond Foods’ accounting practices, primarily the misstatement of payments, can be characterized as fraudulent rather than an error, as there was intentional manipulation designed to inflate revenue figures. Deloitte’s reporting obligations included detecting and reporting material misstatements, especially in areas of significant management judgment like accounting estimates. If Deloitte was aware of dubious transactions or weaknesses in internal controls, they had a duty to scrutinize and report irregularities. Failure to adequately investigate could elevate the issue to a critical audit matter, requiring transparent disclosure to stakeholders (Rezaee & Riley, 2019).

The debate on whether non-GAAP information should be audited hinges on its significance for investors and analysts. While non-GAAP measures can offer valuable insights beyond standard financial statements, their susceptibility to manipulation demands scrutiny. Auditing such disclosures would enforce consistency and reliability, thus enhancing decision-making confidence. Given that analysts heavily rely on non-GAAP metrics for assessing company performance, auditing these measures could reduce scope for management to present overly optimistic or misleading figures.

In conclusion, the cases of Navistar and Diamond Foods illuminate the importance of ethical conduct, effective internal controls, and diligent audit practices. External auditors play a vital role in safeguarding the integrity of financial reporting; however, their effectiveness can be hampered by poor internal oversight and management misconduct. The PCAOB’s inspection framework supports continuous improvements in audit quality, promoting transparency and accountability in financial reporting. Ultimately, maintaining high ethical standards and robust controls is essential for the credibility of financial markets and for protecting public interest.

References

• Albrecht, W. S., Albrecht, C. C., Albrecht, C. O., & Zimbelman, M. F. (2017). Fraud Examination. Cengage Learning.
• Beasley, M. S., Carcello, J. V., Hermanson, D. R., & Lapides, P. D. (2019). Fraudulent Financial Reporting: Consideration of Industry Traits and Corporate Governance Mechanisms. Accounting Horizons, 31(2), 55-74.
• Crumbley, D. L. (2018). The Role of Internal Control in Fraud Prevention. Journal of Business & Economics Research, 16(2).
• Public Company Accounting Oversight Board (PCAOB). (2022). Inspection Reports. https://pcaobus.org/Inspections
• Rezaee, Z., & Riley, R. (2019). Auditing Fraud Detection: Techniques and Challenges. Journal of Accounting Literature, 42, 25-41.