Reference no: EM13886392
Adecco SA is the world's largest temporary employ- ment company. It lost several major accounts because customers felt it was not adequately serving their complex staffing needs. In law- suits filed in the United States, shareholders alleged that the com- pany filed false and misleading financial statements during the period 2000-2004, with problems relating to information technol- ogy security, payrolls, and revenue recognition. Ultimately, the company announced that it was not able to deliver its financial statements on schedule. Their auditors had raised questions about accounting and controls as part of an integrated audit as mandated by the Sarbanes-Oxley Act.
One of the revenue recognition problems that Adecco had was that its accountants recorded revenue for temporary services pro- vided during the first several weeks in January as previous year's income. The company has a database in which it knows, at any point in time, which temporary employees are assigned to which clients, and the daily billing rates for those employees. The com- pany bills each client at a rotating month end; for some clients, the billing is on the 5th of the month, others are on the 15th of the month, and so on. Each client receives only one bill per month and is expected to pay within 30 days after the billing date. The billing is computerized, and the client makes accruals for unbilled revenue at the end of each quarter and year end. Most of the bills are sent electronically, although a few are sent using paper documents.
a. One evidence-gathering option was to send out a confirmation to Adecco's clients as to the amount owed to Adecco as of year end. Explain why (or why not) this would be an effective audit procedure.
b. What other audit procedures could have been used to determine whether revenue was properly recorded?
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