Comptronix Case Study Solution









The solution includes answers to the following 6 questions, plus an
update on what happened to Comptronix after the case study was
published.   
1.  Professional auditing standards present the audit risk model, which is used to determine the nature, timing, and extent of audit
procedures.  Describe the components of the model and discuss how changes in each component affect the auditor’s need for
evidence.

2.        One of the components of the audit risk model is inherent risk.  Describe typical factors that evaluate when assessing inherent
risk.  With the benefit of hindsight, what inherent risk factors were present during the audits of the 1989 through 1992 Comptronix
financial statements?

3.        Another component of the audit risk model is control risk.  Describe the 5 components of internal control.  What characteristics
of Comptronix’s internal control increased control risk for the audits of the 1989 – 1992 year-end financial statements?

4.        The board of directors, and its audit committee, can be an effective corporate governance mechanism.  Discuss the pros and
cons of allowing inside directors to serve on the board.  Describe typical responsibilities of audit committees.  What strengths or
weaknesses were present realted to Comptronix’s board of directors and audit committee?

5.        Public companies must file quarterly financial statements in Form 10-Qs, that have been reviewed by the company’s external
auditor.  Briefly describe the key requirements of SAS No. 71, Interim Financial Statements.  Why wouldn’t all companies (public and
private) engage their auditors to perform timely reviews of interim financial statements?

6.        Describe whether you think Comptronix’s executive team was inherently dishonest from the beginning.  How is it possible for
otherwise honest people to become involved in frauds like the one at Comptronix?

Bonus:  After the case study solution:  Where is Comptronix Now?