ACC403: Auditors and Regulatory Oversight

ACC403 Week 4 Assignment 1: Auditors and Regulatory Oversight Student’s Name Strayer Library Auditors and Regulatory Oversight The role of U.S Securities and Exchange Commission (SEC) is to regulate public companies in the United States, by maintaining steady functionality of the security markets in the country, thus protecting investors from loss of their capital. Through SEC, public companies adhere to laws and regulations that ensure that there is full disclosure of companies’ activities, and therefore, mitigating possibilities of fraud and market manipulations. As a federal regulator of security markets, SEC has found several companies over the years to have violated the generally accepted accounting principles (GAAP) by using various accounting practices, thus exposing investors to risk. Osiris Therapeutics Inc., an American biotech company, is such an organization. Legal liability to third parties BDO USA, LLP (“BDO”) audited the financial reports of Osiris Therapeutics in 2013 and 2014 and over disagreements over the audit process and revenue recognition. According to the SEC (2015) for the fiscal years ended December 31 2013 and 2014 BDO “did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles, except that, as previously disclosed in the Company’s Current Report on Form 8-K” (SEC, 2015). However, BDO had pointed out that there were material weaknesses in the internal control system over financial reporting. Auditors are expected to exercise due care and third parties such as investors, creditors and the government may use the company management for failure to establishing and maintain adequate internal control over financial reporting. Additionally, the Board is tasked with ensuing that the management maintains sound internal control and audit system. As such, the third parties can argue they are not legally liable because they relied on audited accounts they believed were accurate and fair representation of the company’s financial position when recognizing revenue. Violations of generally acceptable auditing standards (GAAS) The auditors provide providing independent assurance that the financial statements present a true and fair of the financial affairs and report this in accordance with generally accepted auditing standards (GAAS). In the standards of reporting it is expected that “The auditor must state in the auditor's report whether the financial statements are presented in accordance with generally accepted accounting principles” (PCAOB, 2019) The auditor offers an opinion depending on the judgments during the audit engagement and when they are unable to perform audit procedures that guarantee the financial statements conform to GAAS they provide a qualified opinion or disclaimer of opinion. The SEC sought further information on the company’s revenue recognition practices with respect to certain distribution contracts, which had the effect of inflating the reported revenue. Since the auditor is expected to exercise due care, there was a need to look further into the company’s revenue recognitio...