Agro Co. Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Agro Co. Case Solution

there might be the possibility that this misstatement was intentional and the company sold less items and made invoices with less amount of $258,046 than the reported amount, as evident from bank statements. Total sales was not reported properly in the financial statements depicts that the company might have wanted to show higher sales and revenue in order catch more investors. So analyzing the overall situation it could be said that there may be chances of fraud from company’s side.

Land: $173,338

Since the land misstatement amount which is $173,338 is less than the performance material amount that is $240,864, so it would not be considered material. As provided, misstatement in the Land account resulted from Argo's failure to remove the land from its books after donating it to charity. As the amount is not material and misstatement occurred out of the charitable work so it could be said that although there is a misstatement but could have occur because of inefficient reporting and may be not that it was intentional.

Q4: “Refer to the Summary of Discovered Misstatements (Sales Account) table above. Discuss how offsetting misstatements should be treated when evaluating the materiality of those misstatements.”

As provided in the Summary of Discovered Misstatements (Sales Account) it could be seen that other than $217,934.70 other amounts were misstated at a very minor level like $18,000 due to transposition error $(428.70) due to incorrect recording. It is also mentioned there that the difference of the $217,934.70 arose because of its recording in wrong according period.

In order to resolve these misstatement issues, the company must address the minor issues like transposition errors and incorrect recordings by implementing control measures to increase effective reporting standards and addressing such minor errors.

As there were the difference of $217,934.70 which arose because of its recording in wrong according period, by implementing the control measures the company could also address such issues to and have a check and balance on the recording standards of the company to ensure that all the accounts are recorded in compliance with the accounting standards particularly followed by the company.

Q5: “Assume that the overstatement of the Cash account in this example was intentional. How would this information affect the audit engagement?”

If the material amount in the cash account,which was overstated with the amount of $258,046 was intentional than there is the involvement of fraud risk. By overstating the company might have wanted to show higher returns of the company in order to catch more investors. If this misstatement was because of fraud than it would severely affect the audit engagement process.

As the amount misstated is material the auditor must brainstorm to determine the potential reason behind this misstatement so that effective control measures could be suggested in order to primarily mitigate the risks like fraud risk behind this misstatement.

The intentional misstatement would provide the auditor audit evidence and the auditor’s opinion would be made according to that, in case of fraud the auditor could pass an adverse opinion reflecting the company’s involvement in fraudulent activities................................

Agro Co. Case Solution

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