summary memos

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  1. Requested AR confirmations from management of ContinuityX and management refused to prepare and sign the confirmations.

    1. EFP Rotenberg spoke to people acting as employees of Internet Providers (companies that owed ContinutyX). Audit team failed to obtain sufficient evidence on AR existence.
  2. SEC states: âEFP Rotenberg and Bottini did not plan or perform procedures to obtain sufficient appropriate audit evidence that ContinuityXâs revenue was legitimate or that it was being recognized correctly. During the ContinuityX Audit, EFP Rotenberg and Bottini obtained signed agreements between ContinuityX and the Internet Providersâ customers that showed that the customers who purchased internet services via ContinuityX did not intend to use or pay for the internet services. These agreements stated that the customers: (1) were not responsible for paying for the internet services they purchased from the Internet Providers; (2) ContinuityX was responsible for paying the Internet Providers for the customersâ monthly internet service bills; and (3) ContinuityX would pay the customers a one-time commission. In short, these agreements, when read in light of the agreements between ContinuityX and the Internet Providers, showed that ContinuityX would pay the customers a kick-back for purchasing internet services so that ContinuityX could earn a commission from the Internet Providers.â
  3. âEFP Rotenberg and Bottini failed to perform sufficient procedures to detect these fraudulent sales despite possessing all of the documents necessary to identify themâ
  4. They also failed to design and perform substantive procedures to figure out of the revenue was actually earned.
  5. ContinuityX paid the Internet Providers security deposits for the customers, and then when the customers did not pay the Internet Providers used the security deposit to the past due balance. ContinuityX recorded these security deposits as assets of $2.1 million, when they should not have been recorded as assets. EFP Rotenberg did not plan or perform procedures to determine if ContinuityX had the rights to the security deposits.

    1. âDuring the ContinuityX Audit, ContinuityXâs management represented to EFP Rotenberg and Bottini that the security deposits held by Internet Provider A were ContinuityXâs assets. To support this assertion ContinuityXâs management provided EFP Rotenberg and Bottini with cashierâs checks drawn from ContinuityXâs bank account. However, the cashierâs checks had the customer listed as the remitter. EFP Rotenberg and Bottini accepted the cashierâs checks as evidence of ContinuityXâs ownership of the security deposits and did not question why ContinuityX was using cashierâs checks to pay security depositsor why a check drawn from ContinuityXâs bank would list the customer as the remitter. Furthermore, in an email correspondence with Internet Provider A, Bottini was told that Internet Provider A held the security deposits for the customers. EFP Rotenberg and Bottini failed to take further steps or perform additional procedures after being told by Internet Provider A that the security deposits were ContinuityX customersâ deposits, and not ContinuityXâs. EFP Rotenberg and Bottini failed to resolve inconsistencies in the audit evidence obtained to become reasonably assured that ContinuityX was properly recording the security deposits as assets.â
  6. âBased on the foregoing, EFP Rotenberg and Bottiniâs did not plan or perform sufficient procedures to provide reasonable assurance of detecting illegal acts that would have a direct and material effect on the determination of ContinuityXâs financial statement amounts, as required by Section 10A(a)(1) of the Exchange Act. This was demonstrated by EFP Rotenberg and Bottiniâs failure to obtain sufficient appropriate audit evidence that was responsive to the significant risks identified by the engagement team. Specifically, EFP Rotenberg and Bottini failed to perform sufficient alternative procedures after management refused to prepare accounts receivable confirmations. Furthermore, despite possessing information that contradicted managementâs assertions, EFP Rotenberg and Bottini failed to resolve inconsistencies in the audit evidence. As a result, EFP Rotenberg and Bottini failed to identify ContinuityXâs improper revenue recognition and the inclusion of customer security deposits as company assets.â

summary each of those become six memo.

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