Auditors and Regulatory Oversight: Audit Report of NutraCea

Auditors and Regulatory Oversight
Name
Institution Affiliation
Date
Analyze the audit report that the CPA firm issued. Ascertain the legal liability to third parties who relied on financial statements under both common and federal securities laws. Justify your response.
Institution, a bank, vendors, customers can sue an auditor, present, and future investors for failing to recognize that a borrower's financial statements are materially misstated due to legal obligations to third parties. NutraCea's financial data exaggerated total product sales by 36.8% in the second period, 17.6% in the third period, and 7% for the final year, in understating the company's economic decline by 89.8% in the second period, 17.6% in the third period, and 7% for the final year, $2.6 million in erroneous sales entries were to blame for the overstatements. This type of misleading information jeopardizes shareholder assets and a bank's ability to repay a loan. The auditor in charge of the financial statements was competent in their work, with a solid understanding of the industry and a complete understanding of the audit. It was a conspiracy because NutraCea and Bi-Coastal were both involved in the deception.
If indeed the assessor used reevaluations, I presume Kline was also able to monitor and start comparing production cost and link people to the instructions declaration and invoice, making sure that the revenues quantity was recorded accurately. If she also utilized the inspecting compliance type, she could examine the industry's information and documentation to confirm its diary entries. The client often retains a customer order, shipping document, and replica proforma invoice for each operation. This publicly available information is divided into internal and external categories, allowing Kline to determine who created the papers. By adopting these steps, misstatements would be eliminated or reduced. As a result, legal responsibility would exist under both common and federal securities laws. If a third party suffered a loss due to the claimant's reliance on false financial statements, the claimant would be liable under common law. When a bank is unable to recover a large loan from an insolvent client, the bank alleges that the loan was made based on false audit financial statements and that the CPA firm should be held liable since the audit was not performed with appropriate care (Arens, Elder, Beasley, Hogan, pg. 121). Due to the availability of class action lawsuits and the opportunity to seek great damages from defendants, litigants frequently perceive federal remedies under federal law (Arens, Elder, Beasley, Hogan, pg. 123).
Speculate on which statement of generally accepted auditing standards (GAAS) that the company violated in performing the audit.
There was a misstatement of the financial accounts in conformity with widely recognized accounting principles auditing norms and a collapse of the sloppy internal control system. There was fraud in the offer and sale of securities, as well as fraud in the purchase and sale of bonds, as well as violations of regulatory regular disclosure standards, records management violations, effective internal control violations, falsification of records, and false statements to accountants, according to the SEC. The auditor, on the other hand, would be in violation of the integrity and due care ethical requirements (Arens, Elder, Beasley, Hogan, pg. 51). Owing concern would guarantee that the auditor was knowledgeable of the profession...