Howard Street Jewelers Case
Essay by shaziafatima13 • May 15, 2013 • Case Study • 989 Words (4 Pages) • 2,020 Views
Case 3.2 - Howard Street Jewelers, Inc.
1. The main internal control concept the Levis ignored was segregation of duties. No one
person should be responsible for all transactions from the beginning to the end. Betty had too many responsibilities that were interwoven and should have been performed by more than one person. She handled the cash that came in, maintained the cash receipts and the sales records. Another concept that this relates to is that no one individual should perform more than one of the following; recording transactions, authorizing transactions and maintaining custody over the assets. Betty was able to do all three; selling jewelry, putting items in layaway, recording sales, maintain cash receipts and accepted the cash. Betty was allowed to have incompatible duties, which allowed her to commit fraud of $350,000.
2. The case states that the CPA served as their accountant for almost 40 years providing a wide range of accounting and business issues. The responsibility that the CPA has to pursue this matter is dependent on the time of this fraud relating to what services were provided by the CPA. It is also dependent on what services the CPA is providing now. Assuming the CPA was only providing tax return services, as he is doing now, than the CPA does not have responsibility to pursue this matter.
The answer is not the same if the CPA is performing an audit, review or compilation. The CPA is liable in these circumstances. There are two types of liabilities that the CPA can have; common law liability and statutory law liability. The liability that the CPA has in this case is common law liability. Since it is a privately owned company, the CPA will not have statutory liability.
The CPA must exercise due professional care, and if the CPA was performing one of the three tasks mentioned, then he probably was not exercising due professional care since this is a small company and over $350,000 in fraud was committed. It was also mentioned that the CPA mentioned that there were occasional shortages in the cash receipts records that seemed larger than normal for a small retail business.
$350,000 is a material amount for this business and would change the users of financial statements viewed the financial statements. It was so material, that it almost forced the store to close.
3. I do not agree with dropping what I am working on to try to sell a new client on my
services. So the answer to this question is dependent on how desperate I am for a new client. If I did not have a chance to prepare for the meeting and they did not have an appointment, I would ask the potential client to come back shortly.
There are three major reasons for sending the client away; the first is I will not drop what I am doing for somebody who does not have an appointment. A CPA firm is not something that you window shop, and the potential client could
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