Audit & Assurance Service: DCH Audit Firm Bankruptcy Discussion

This report analyzes the audit and assurance services provided by the DCH audit firm, specifically addressing the risks associated with bankruptcy. It examines the firm's responsibilities in detecting fraud, particularly in cases where the fraud amount threatens the 'going concern' status of a company, such as Forest Vale Housing Estate Ltd. The report discusses the significance of an unqualified opinion and the concept of 'going concern,' highlighting the potential issues arising when a company is not a going concern despite the auditor's opinion. It explores how creditors can potentially prove DCH's negligence in court and suggests that DCH can mitigate risks through internal audits. The report references relevant academic literature to support its analysis, including works by Cullinan, Li, Ryu, and Shvyreva.

Running head: AUDIT & ASSURANCE SERVICE
DISCUSSION ON BANKRUPCY
Name of the Student
Name of the University
Authors Note

1AUDIT & ASSURANCE SERVICE
MEMORANDUM
TO: Audit firm of Dewey, Cheatem and Howe
FROM:
DATE:
Summary:
In this memo, a brief discussion has been done about the functioning of the audit firm of
Dewey, Cheatem and Howe. In furtherance, advice has been provided to the audit firm of DCH
regarding how they can reduce their risks concerning fraud.
Issue
In this memo, the issue to be discussed is whether Dewey, Cheatem and Howe do
something that can cause creditors to lose in court.
Solution
A forgiving solution to the issue arose, it is important to know whether the auditor has a
responsibility to undercover fraud of its client. Some scholars are of the view that an auditor can
undercover its client’s fraud if the fraud is not that severe and does not threaten the existence of a
company (Shvyreva and Kruglyak 2016). In this given scenario the amount misappropriated by
Forest Vale Housing Estate Ltd is $ 3 billion which is quite enough to threaten the existence.
Here, the DCH audit firm has a responsibility to identify the fraud, not because of its fraudulent
characteristics but because it impacts the ‘going concern’ status of the company. Therefore, in
this case, the concept of going concern is the problem.

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Discussion
An unqualified opinion is the decision of an independent and impartial auditor
concerning the fair and correct presentation of the financial statements of a corporation, without
any defined exceptions and in compliance with the widely agreed Generally Accepted
Accounting Principle (GAAP) (Cullinan 2012). It is considered to be the most popular form of a
report given by an auditor. As the opinion of an auditor, it does not determine the economic
condition of the company or construe economic details. It means that the independent auditor has
adequate information regarding the audit report to conclude that the financial statements of the
company are consistent with GAAP and reflect the financial situation of the company equally for
the declaration period. It is released if the auditor is confident that all updates, accounting
procedures and their implementation and consequences are correctly reported (Li, Tian and Qi
2012).
On the other hand, a going concern is regarded as such a business which performs
without the threat of insolvency within the next 12 months or the particular bookkeeping period
(Ryu and Roh 2007).
In this given scenario, the view of DCH audit firm regarding the True and Fair report of
FVHEL is an unqualified opinion, because the financial statement of FVHEL is based ongoing
concern but in reality, the company is not a going concern because a huge fraud is involved
here.
Thus the creditors must prove before the court that DCH did not perform their duties
adequately and made the financial statement of FVHEL based on the ongoing concern which is

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not true. On the other hand, DCH can reduce their risks regarding these types of issues through
internal audit.
Reference
Cullinan, C.P., Wang, F., Yang, B. and Zhang, J., 2012. Audit opinion improvement and the
timing of disclosure. Advances in Accounting, 28(2), pp.333-343.
Li, L., Tian, G. and Qi, B., 2012. Auditors' unqualified opinions on internal controls and accrual
quality. Nankai Business Review International.
Ryu, T.G. and Roh, C.Y., 2007. The Auditor's Going-Concern Opinion Decision. International
Journal of Business & Economics, 6(2).
Shvyreva, O.I. and Kruglyak, Z.I., 2016. Problems of professional judgment application in
evaluating the company's going concern. Indian Journal of Science and Technology, 9(14),
p.91520.