STUDENT ID NUMBER: 10566774

COURSE NAME: SEMINAR 1

COURSE CODE: EACC 610

DATE OF SUBMISSION: 15TH MARCH 2022

A) Specific Weakness included the following:

Segregation of Duties: It could be difficult to ensure that division of roles is implemented when

the number of personnel in a department, particularly accounting, is limited. The Koss scandal

shows what might happen when those responsibilities are really not separated. Because Koss's

accounting department had a small staff, several responsibilities were consolidated and delegated

to the same person. Koss failed to appropriately separate duties in order to create a solid internal

control system.

In dealing with this, the firm ought to engage more employees to handle the various

responsibilities. “Among other things, different employees should have performed the separate

duties of signing checks, processing cash receipts and cash disbursements, and maintaining

books of original entry.” (United States Securities and Exchange Commission Vs Koss

Corporation, 2011).

Balance Sheet and Bank Account Reconciliations: Michael Koss failed to reconcile its bank

accounts or balance sheets on a monthly basis. Someone outside the accounting department,

including an auditor, the CEO, or the Vice President of Operations, did not check large money

transfers or the reporting of payments on accounts payable when they were not handled through

the accounts payable system.

The firm has to engage frequent checks on its accounts. The firm should do more accounts

reconciliations to be able to track the inflow and outflow of cash from the firm. This will enable

the firm to keep proper track of its finances and deal with the issues of fraud.

Supervisory Controls and Governance: While auditing Koss's monthly financial statements,

Thorton neglected to check the general ledger detail trial balance, major journal entries, or the

reconciliations of all subsidiary ledgers or charts that supported important account balances. On a
regular and repeated basis, the auditor did not explore anomalous or infrequent journal entries.

Sachdeva gave the auditor with reporting certificates for his evaluation, but he did not perform a

thorough analysis of Koss's accounting in relation to these certifications (United States Securities

and Exchange Commission Vs Koss Corporation, 2011).

Dealing with such a weakness would require that the firm should employ proper checks and

balances to ensure that every account details are provided. The auditors need to carefully

examine all accounts.

Safeguarding of Assets: Internal monetary controls at Koss were ineffective. While Michael

Koss, the company's CEO, was required to approve invoices of $5,000 or more for payment,

Sachdeva and Mulvaney were able to process large wire transfers and cashier's cheques outside

of the accounts payable system to pay for Sachdeva's personal purchases without seeking or

obtaining the approval of Koss. Furthermore, the petty cash account was not subjected to an

independent audit.

The firm ought to put measures in place that would allow strict compliance to such systems.

Unless approval has been given, there should not be a loophole anywhere. There is the need to

safeguard the assets of the firm.

B) Since the audit committee has the authority to recruit and dismiss the head of internal audit,

set the internal audit budget, assess the internal audit plan, and consider all key internal audit

findings, these issues should have been addressed and implemented to prevent improper credit

card use. They should have additionally performed or overseen a special investigation into the

incident, reviewed sensitive payment rules, and coordinated periodic assessments of compliance

with business standards including corporate governance procedures. They might have gone even

farther by asking Sachdeva to produce receipts and a credit card statement at the end of every
month. This method may be used to trace every dollar spent on the business credit card. Not only

can you see where the money is going, but you can also see what it's being spent on, as well as

the date and time.

C) The company should assign suitable staff with the skills, knowledge, and time to complete

endeavors in accordance with the standards, and also regulatory and legal requirements, and to

assist the firm or engagement partners to issue reports that are appropriate in the circumstances.

The company should create methods for evaluating the talents and competency of its employees.

The following competences are taken into account when allocating engagement teams and

establishing the amount of supervision required:

 Through adequate training and involvement, a comprehension of, and applied experience

with, engagements of a like kind and complexity.

 Professional standards and regulatory and legal obligations, must be understood.

 Technical expertise, particularly an understanding of applicable information technology.

 Understanding of the industries in which the clients operate.

 Ability to execute professional judgment

 A thorough knowledge of the company's quality control rules and processes.

D) The responsibility of the audit committee are the following:

 Obtaining a report from the external auditor each year that covers the company's internal

control mechanisms, any quality control or regulatory issues, and any relationships that

might jeopardize the external auditor's independence.

 Discussions with management and the external auditor about the firm's financial

statements
  The firm's statements, as well as financial information and income projections supplied to

experts, are discussed in its meetings.

 Policies on risk assessment and risk management are being discussed in its meetings.

 On a regular basis, meet individually with administration, internal and the external

auditor.

 Reviewing any audit issues or challenges that the external auditor has had with

management with the external auditor.

 Creating explicit recruiting standards for external auditors' current and past personnel

 Reporting frequently to the board of directors

In line with the aforementioned, we believe that the auditors of KOSS Corporation were

responsible for noticing something was wrong with the financial statement by conducting a

thorough audit, adhering to all PCAOB auditing standards, and expressing their opinion based

on the evidence and audit procedures. It appears that they were unable to do so. KOSS always

received an unqualified opinion on financial statements from Grant Thornton. Initially, Grant

Thornton declined to take responsibility for carelessness, claiming that management is

responsible for the creation and fair reporting of financial statements as well as the

implementation of internal controls. They also alleged that they were not allocated to an ICFR

audit, which has been necessary for publicly traded firms and included in issuer audits for more

than a decade. KOSS hasn't had to have its outside auditor review the efficiency of the

company's internal controls over its financial reporting because of its size. However, they

ultimately confessed their errors and incompetence and agreed to pay $ 8.5 million in

compensation. According to a review of what occurred, the fact that the fraud was not
discovered until a significant amount of money had been plundered was plainly attributable to

senior management failing to do their tasks correctly.