Response to Comments from the Audit Partner. Business & Marketing

Respond to the comments from either (a) the Audit Senior and/or (b) the Audit Partner concerning the 11/4/19 WSJ article regarding Under Armour. Include a discussion of the role of auditing. Defend your position by using the topics discussed in class. THERE IS NO OTHER RESOURCES/ REFERENCES NEEDED.

Section 6      Essay Question  (26 points)
Respond to the comments from either (a) the Audit Senior and/or (b) the Audit Partner concerning the 11/4/19 WSJ article regarding Under Armour. Include a discussion of the role of auditing. Defend your position by using the topics discussed in class. 
 Under Armour Is Subject of Federal Accounting Probes; Justice Department, SEC examining how sportswear maker recorded revenue; company says it is cooperating with investigators(by Viswanatha, Aruna; Safdar, Khadeeja. WSJ, 4 Nov 2019. )
Federal authorities are investigating Under Armour Inc.'s accounting practices in a probe examining whether the sportswear maker shifted sales from quarter to quarter to appear healthier, according to people familiar with the matter. As part of the probe, which hasn't been made public, investigators questioned people in Baltimore, where the company is based, as recently as last week, one of the people said. Justice Department prosecutors are conducting a criminal inquiry into the matter in coordination with civil investigators at the Securities and Exchange Commission, another person said.Under Armour said "The company firmly believes that its accounting practices and disclosures were appropriate." Spokespeople for the Justice Department and SEC declined to comment. When examining what are known as revenue-recognition practices, authorities generally focus on whether companies record revenue before it is earned or defer the dating of expenses to make earnings appear stronger, among other possible infractions.The company, which reported flat sales in its third-quarter results on Monday, has been restructuring its operations and struggling with weak sales in the past two years. Until then, it had been among the fastest-growing apparel makers, riding 26 straight quarters of at least 20% year-over-year revenue growth. That streak ended abruptly when Under Armour missed its sales targets in the final quarter of 2016. On Jan. 31, 2017, the company's shares plunged after it reported sales growth of 12% in the holiday quarter and cut its growth forecasts for the next year. That day, Under Armour also said its then-finance chief was leaving after a year on the job. At the time, founder, Chairman and CEO Kevin Plank attributed the slowdown to fewer store visits by shoppers, the company's product assortment and changes in the sportswear industry, including retailer bankruptcies such as Sports Authority Inc. Mr. Plank moved to restructure the operations, cutting jobs and hiring an outsider, Patrik Frisk, as president.Under Armour had three chief financial officers from 2016 to 2017. Brad Dickerson, who had served as CFO since 2008, left the company in February 2016. Chip Molloy, a former PetSmart Inc. executive, took over but stayed a year on the job. Under Armour at the time cited unspecified personal reasons for his departure. David Bergman was named acting finance chief in February 2017 after the company reported its quarterly sales miss and Mr. Molloy's exit. Mr. Bergman, who has worked at Under Armour since 2004 in various finance roles, was named permanent CFO in December 2017. The slowing growth, coupled with some unexpected declines in quarterly profit, fanned concerns about Under Armour's ability to continue to win market share from Nike Inc. and Adidas AG. The company's stock, dropped over 14% upon the first public disclosure of the SEC and DOJ investigations. Last month, the company said Mr. Plank was stepping down as CEO on Jan. 1 after more than 20 years in the role. Mr. Plank plans to stay at the company as executive chairman and brand chief, and Mr. Frisk will take over as CEO and continue reporting to Mr. Plank. Mr. Plank, a former University of Maryland football player, founded Under Armour in his grandmother's basement with sweat-wicking compression apparel. Over time, he added new products and struck endorsements with athletes including NBA star Stephen Curry and golfer Jordan Spieth, building the company into a global brand with about $5 billion in annual sales. In recent years, the company has refocused on performance attire but has continued to struggle in its domestic market. In its second fiscal quarter, Under Armour reported a 3% decline in sales in North America and said it expects them to decline over the full year. Analysts expect total sales of $1.41 billion in the third quarter, compared with $1.44 billion in the same period last year.Like many companies, Under Armour has faced complaints by current and former employees about its culture, including the expensing of strip-club visits and inappropriate behavior by executives, the Journal has reported. Mr. Plank has spoken openly about Under Armour's shortcomings, promised to make improvements and replaced some senior executives. When he announced plans to hand over the CEO title, the 47-year-old billionaire said the decision was part of the company's long-term succession planning.COMMENT THREADS ON THE 11/4/19 WSJ ARTICLE
Former Audit Senior (initial response)
Where were the auditors’?  This fraud went undetected for years. There seemed to be countless red flags at Under Armour. The auditors must have talked to the officers, audit committee, and attorneys didn’t follow up about these issues and apparently didn’t follow up. Trust but verify is what we’re taught. 
Former Audit Partner’s First Response to the Former Audit Senior
Respectfully speaking, you’re either a fool or a naïve because you have no idea what you’re talking about. Audits are not intended to guarantee the accuracy of financial statements. There are hard to measure areas like revenue recognition, goodwill valuation, or accruals that are difficult to verify with credible auditing evidence. To make matters worse, auditors don’t audit quarterly statements. By the way, where did you get your silly ideas, who do you work for, who trained you?    
Former Audit Senior’s Second Response to the Former Audit Partner’s Criticism
As a former Big4 auditor, all you partners only cared about is money and your bonus. If UnderArmour recognized revenue prematurely and/or improperly, then why was this detected through an accounts receivable confirmation? Why was this such a big scandal? Why such CFO turnover and the founding CEO stepping aside? Why did the stock price drop 14%? Why weren’t the auditors’ investigated? Maybe if you auditor partners did your job protecting investors and the public, then you’d earn your huge salaries and bonuses, and maybe get sued less (expletive deleted).  
Former Audit Partner’s Second Follow-Up Response to the Former Audit Senior
I know nothing of the details of this particular case, and neither do you. But your presumption that if something is material to investors, then the auditors should have caught it is pure ignorance. Can you think of an audit procedure that is guaranteed to find those? Of course you cannot. My point is that just because something is material to investors doesn't mean that it can be completely verified during an audit. If you truly are a former Big 4 auditor and got past the associate level then you would know that. Companies make bad business decisions all the time but that is not within the scope of an audit unless it affects the financial statements or the internal control over those financial statements.