ToadyCom Is a New Public Phone and Internet Company Heavily

question 18

Essay

Toady.com is a new public phone and internet company heavily financed by the Eastpac Bank. During your audit of Toady.com you have found that the business is in the practice of signing up new customers with very little in the way of credit checks. You are concerned that the disclosure of bad and doubtful debts may not accurately reflect the true situation of the company. You notice that if you apply the standards correctly the bad and doubtful debts will have such an effect on the financial statements that capital adequacy requirements may be breached.
When you approached management about the adequacy of these disclosures they told you that they were happy with the bad and doubtful debts at their current level, and that they would not be changing their method of application of the standard.
What is your first obligation? What type of auditor's report will you issue, and why?

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Definitions:

Nonsignificant Findings

Results of a statistical analysis that do not meet the criteria for significance, indicating that any observed effect might be due to chance.

Confederate

In psychological research, a person who pretends to be a participant but in fact is part of the research team, used to manipulate social interactions as part of the experiment.

Mediator

A variable that explains the mechanism through which an independent variable influences a dependent variable in a study.

Arbitrator

An arbitrator is a neutral third party chosen to resolve disputes between parties outside of court, giving a decision that is usually binding.