Bill Deburger - in Charge Accountant

1- What Conclusion do you believe Bill DeBurger reached in his inventory memo? Put yourself in his position. What conclusions would you have expresses in the inventory memo? Why?

Bill Deburger had two hours to complete a memo about Marcelle's inventory accounts. Although it is frowned upon, auditors are allowed to release and adverse opinion or a disclaimer. Bill could go ahead and issue the opinion that his boss wants him to, while adding and explanatory paragraph that states the net overstatement of $72,000 may not be accurate, but it is reasonable to consider the overstatement still immaterial. However, this is really unnecessary because the amount Bill is concerned about is immaterial. There really isn't much Bill can do at this point but release the memo his boss wants him too. Bill may not be sure the overstatement is right, but he is also not sure it is wrong! Perhaps Bill could go and speak to other accountants and see what they think. If they have supporting evidence that the amount is wrong, then Bill can use that evidence to write an opinion that is adverse. If not, then Bill may feel more at peace about writing a memo that states the account is " presented fairly, in all material aspects , in conformity with the general accepted accounting principles" (Knapp, pg 352).

I am really not sure what I would do in this situation. Honestly, I hope I never let such a potentially small issue to snowball into such a large one by waiting until the last second to deal with it. . What I really think I would do is not wait until the last minute! I would have requested additional tests weeks ago! Then I could write the memo more confidently.

2- Would you have dealt with you uncertainty regarding the inventory account differently than Bill did? For example, would you have used a different approach to raise the subject with Sam Hakes?

Bill was trying to do the right thing by telling his boss he was not comfortable with signing off on an account he was unsure of. The error Bill made was the timing and manner he approached Sam Hakes.

Bill should not have approached Sam without an explanation. Walking into Sam's office and simply stating "I have decided I can't sign off on the inventory account" was not a good way to start. Bill should have brought the issues to Sam and then told him that because of the issues, he was not comfortable giving Marcelle stores a clear report. If Sam had been approached with the whole picture, his reaction probably would have been better.

Now onto the other issue, the timing of Bill's approach. The main problem with the way Bill handled his uncertainty with the inventory account was waiting until the last minute. It was not wrong for Bill to be uncertain, that happens in auditing all of the time. The problem is that uncertainty leads to the need for certain steps required by the AICPA and PCAOB. "When the independent auditor has not satisfied himself as to inventories in the possession of the client through the procedures appropriate, tests of the accounting records alone will not be sufficient for him to become satisfied as to quantities; it will always be necessary for the auditor to make, or observe, some physical counts of the inventory and apply appropriate tests of intervening transactions. "( Inventories, PCAOB AU sec 331.12). What this means is, if Bill was not able to find sufficient information to issue a sure opinion he needed to take further steps and carry out further tests in order to find it. Because Bill waited until the last minute (two hours before the report was due) the auditing firm is now in a bind. If Bill had approached Sam earlier when he first noticed the problem further tests could have been carried out the issue may have been avoided. In Bill's defense it sounds like he is surrounded by a work place that is more worried about