Paul Polishan apparently dominated Leslie Fay’s accounting and financial reporting…

Question:

Paul Polishan apparently dominated Leslie Fay’s accounting and financial reporting functions and the individuals who were his subordinates. What implications do such circumstances pose for a company’s independent auditors? How should auditors take such circumstances into consideration when planning an audit?

Answer:

Finding the implications, if one individual dominates a company’s reporting and accounting:

• When one individual dominates a company’s financial reporting, there may be a lack of checks and balances.

• This creates an opportunity for potential fraud and auditors should be prepared to consider this risk in their audit.

• While a tightly controlled accounting and reporting function at a firm may not be a problem in and of itself, the fewer people involved in certain levels of accounting and reporting, the easier it is to perpetrate irregularities.

• In this sort of situation, an audit team should likely step up its level of surveillance and examination particularly in terms of how and when it conducts certain audit tests.