These three cases, developed in collaboration with KPMG professionals to help audit instructors integrate the KPMG Professional Judgment Framework into the classroom, have been designed to be delivered in a manner that helps students better understand the importance of applying professional skepticism and critical thinking when making judgments and decisions in difficult auditing contexts. To be an effective audit professional in the 21st century, it is important that students learn a structured approach to apply professional skepticism as they critically think about the documentary evidence gathered when they make professional judgments.

Each of the three short cases presented (Hamilton, Pleasant Pasta, and Adams) describes a real-life scenario that was written based on the SEC case document for an actual restatement that has occurred in the recent past.  The cases provide a mechanism for educators to illustrate real-life contexts where auditors were not professionally skeptical and did not properly apply critical thinking skills while making important judgments.  The identity of each company was concealed by using fictitious names throughout.

The primary target audience for these cases is the financial statement auditing class, at either the undergraduate or graduate level.

Learning Objectives

The cases can be used to help auditing students always remain skeptical about the possibility of fraud. After completing the cases, students should be able to:

• Describe the relevant technical knowledge related to identifying and responding to fraud risks;
• Identify fraud risks in each of the restatement scenarios presented;
• Clarify the issues, objectives and consider the alternatives that may have been available to auditors, given the facts and circumstance in each of the restatement scenarios presented;
• Consider the type of information that could have been gathered and evaluated, given the facts and circumstance in each of the restatement scenarios presented;
• Recognize the importance of reaching an overall conclusion and then carefully documenting the rationale in accordance with professional standards for all judgments made;
• Develop awareness of the most common professional judgment traps and biases (i.e., confirmation, availability, anchoring, and overconfidence) and recognize when to take steps to mitigate these biases.