| Course | ACC 645 Advanced Auditing |
|---|---|
| Module | Module 6 |
| Paper type | graduate milestone on responding to a fraud allegation |
| Length | About 1,030 words, 6 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | MS Accounting |
| Updated | October 2026 |
Free sample paper for ACC 645 Module 6
Response to the Contract Backdating Allegation
[Student Name]
Southern New Hampshire University
ACC 645: Advanced Auditing
Milestone Two
[Instructor Name]
[Date]
The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.
Response to the Contract Backdating Allegation
Introduction
On October 20, the audit committee chair received an anonymous email through the company's hotline alleging that a regional sales vice president had customers sign contracts in early October and date them September 30 so they would count in third-quarter bookings and commissions. The company reports bookings, the annual value of new contracts, as a key metric in its earnings releases. This milestone sets out the auditor's response under AS 2401 on fraud (Public Company Accounting Oversight Board, 2016a), AS 2405 on illegal acts and Section 10A of the Securities Exchange Act.
Immediate Steps
The audit committee chair informed the engagement partner the same day, as the committee's charter requires. The committee engaged independent outside counsel, who retained forensic accountants, to investigate. The auditor's role is distinct: it does not conduct the investigation, but it must understand the allegation, evaluate whether the investigation is adequate, perform its own procedures and consider the implications for the audit. Dyck et al. (2010) found that employees are among the most important sources of fraud detection, more so than auditors, which is why the auditor treats a hotline tip as serious evidence rather than a nuisance.
Section 10A and Illegal Acts
Backdating a contract to misstate the period of revenue or bookings could be an illegal act if it results in false statements to investors. Under Section 10A, an auditor who becomes aware of information indicating that an illegal act has or may have occurred must determine whether it is likely, assess its effect on the financial statements and inform management and the audit committee. If the act has a material effect and management does not take timely remedial action, the auditor reports to the board, which must notify the SEC within one business day; if it does not, the auditor must. AS 2405 sets out the related audit procedures (Public Company Accounting Oversight Board, 2016b). The auditor will document each communication and its date.
Evaluating the Investigation
The auditor met counsel to agree the scope: all contracts signed by the vice president's region in the last eight quarters, interviews with the vice president, his team and sales operations, and a search of email and messaging. The auditor confirmed that counsel and the forensic accountants had no prior relationship with management and that they reported to the committee, not the CEO. The auditor asked to receive the findings, the evidence supporting them and the list of interviewees, and to be told immediately if the inquiry reached anyone in senior management.
The Auditor's Own Procedures
The auditor performed procedures independent of the investigation. It obtained e-signature metadata for all 312 contracts signed in the last month of each quarter across the company, not only the region, and compared signature timestamps with contract dates. It sent confirmations directly to the 23 customers named in the region's late-September contracts, asking for the signature date. It compared contract start dates in the billing system with implementation records. The metadata showed all 23 were signed between October 1 and 6; 21 customers confirmed October dates, and 2 did not respond, but their metadata was consistent. No other region showed the pattern. The auditor also reviewed the vice president's prior eight quarters and found three contracts in earlier quarters with signature dates two or three days after the contract date, too few and too small to change any earlier period.
Effects on the Statements and Metrics
Subscription revenue starts at go-live, so the backdating did not shift subscription revenue materially. But $310,000 of implementation fees, recognized when setup was complete, was recorded in the third quarter rather than the fourth, and capitalized commissions of $164,000 were recorded a quarter early. The annual effect is nil; the third-quarter effect on revenue was 0.2 percent. The larger effect was on bookings: the $4.1 million of annual contract value represented 8 percent of third-quarter bookings reported in the earnings release. Bookings is not a GAAP measure and is outside the audited statements, but the auditor reviewed the third-quarter interim statements and must consider whether that review needs to be revisited, and the company must consider correcting the metric publicly.
Management Integrity and Representations
The investigation found that the vice president acted alone, motivated by a quarterly accelerator in his commission plan, and that his manager, the chief revenue officer, did not know. The company terminated him and clawed back commissions. The auditor considered whether the finding affects reliance on other management representations and concluded it does not, given the investigation's breadth and the absence of the pattern elsewhere, but it added specific representations about the matter to the year-end letter.
Internal Control Conclusion
AS 2201 lists identification of fraud on the part of senior management, whether or not material, as an indicator of a material weakness. The vice president leads one of six regions and is not an executive officer or a member of senior management as the company defines it for its disclosure controls. The control that failed was the sales operations review of contract dates, which did not compare dates with signature records. Because the annual effect on revenue is nil and the quarterly effect is far below materiality, and because the entity-level controls, the hotline and audit committee response, worked as designed, the auditor classifies the deficiency as significant rather than a material weakness. The company has added an automated check of signature metadata to its deal desk process.
Effect on the Audit Plan
The allegation changes the year-end audit in three ways. Fourth-quarter contract testing will include signature metadata for every contract above $50,000 signed in the last two weeks of December, not only a sample. The fraud risk assessment will add commission accelerators as a pressure point, and the team will review the design of the new sales compensation plan for 2026. And the engagement quality reviewer will review the auditor's evaluation of the investigation before the report date.
Conclusion
The audit committee's investigation, the auditor's own objective evidence and timely communication under Section 10A resolved the allegation. The financial statement effects are immaterial, but the bookings metric and the control failure need attention, and both will be communicated to the audit committee in writing.
References
Dyck, A., Morse, A., & Zingales, L. (2010). Who blows the whistle on corporate fraud? The Journal of Finance, 65(6), 2213-2253. https://doi.org/10.1111/j.1540-6261.2010.01614.x
Public Company Accounting Oversight Board. (2016a). Consideration of fraud in a financial statement audit (AS 2401). Author.
Public Company Accounting Oversight Board. (2016b). Illegal acts by clients (AS 2405). Author.
What the ACC 645 Module 6 instructions ask for
The second ACC 645 milestone usually presents an allegation or discovery of possible fraud or an illegal act and asks how the auditor should respond. Plan to explain the auditor's responsibilities under AS 2401 for fraud and AS 2405 for illegal acts, the communication requirements of Section 10A of the Securities Exchange Act, the audit committee's role in commissioning an investigation, how the auditor evaluates that investigation and what additional procedures the auditor performs. Then assess the effects on the financial statements, management's integrity and representations, internal control and the audit report. Explain the sequence of steps, because timing and communication are part of what the grader evaluates, and show how the year-end plan changes as a result.
How this ACC 645 Module 6 milestone two example is built
The milestone follows an October hotline email alleging that a regional sales vice president had 23 contracts, $4.1 million of annual value, signed in early October but dated September 30. The audit committee hires outside counsel and forensic accountants; the auditor evaluates their independence and scope. E-signature metadata and customer confirmations show all 23 were signed October 1 to 6. The effects are $310,000 of setup fee revenue moved from the third quarter to the fourth, misstated commissions and an 8 percent overstatement of third-quarter bookings in the earnings release. The vice president is terminated. The milestone concludes the control failure is a significant deficiency, not a material weakness, and notes the follow-up on the third-quarter review and the bookings metric.
Where the ACC 645 Module 6 rubric puts the points
Rubrics for the second ACC 645 milestone typically score identification of the auditor's responsibilities, Section 10A communications, evaluation of the investigation, the auditor's own procedures, assessment of financial statement effects, implications for management integrity and internal control, and use of the standards. Strong milestones distinguish the audit committee's investigation from the auditor's procedures, use objective evidence such as metadata and confirmations, consider non-GAAP and key metric effects as well as GAAP amounts and apply the indicators of a material weakness carefully. Common deductions include the auditor conducting the investigation itself, skipping Section 10A, treating the matter as resolved once the employee leaves and ignoring effects on earlier quarterly reviews.
ACC 645 Module 6 help: the mistakes that cost points
Fraud response milestones most often slip on roles: the audit committee directs the investigation through independent counsel, while the auditor evaluates whether the investigation was adequate and performs its own procedures. A second weak spot is the internal control conclusion, where fraud by senior management is an indicator of a material weakness, so the seniority of the person involved must be analyzed, not assumed. If your case involves an illegal act without fraud, such as a bribery allegation, AS 2405 and Section 10A drive the analysis in the same way. Lay out the timeline of discovery, communication and investigation first; most of the analysis depends on it. Then separate GAAP effects from effects on metrics outside the statements.
Get ACC 645 Module 6 written to your instructions
Send the ACC 645 Milestone Two guidelines and the allegation facts. The milestone will set out the auditor's legal and professional duties, plan procedures to test the claim, evaluate the investigation and its findings and reach the reporting and control conclusions. Turnaround is two days, and the first is on us. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
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ACC 645 Module 6 questions, answered
Where can I find a free ACC 645 Module 6 Milestone Two sample?
This page includes a full ACC 645 Milestone Two on an auditor's response to a whistleblower's backdating allegation.
What does Section 10A require of auditors?
If the auditor detects a likely illegal act, it must inform management and the audit committee; if the act is material and not remedied, it reports to the board, which must notify the SEC within one business day, or the auditor must report directly.
Who investigates a fraud allegation at a public company?
The audit committee typically engages independent outside counsel and forensic accountants; the external auditor evaluates the investigation and performs its own procedures.
Is fraud by any employee a material weakness?
Not necessarily; fraud on the part of senior management, whether or not material, is an indicator of a material weakness, but fraud by others is evaluated on likelihood and magnitude.
How can auditors test contract dates objectively?
By examining electronic signature metadata, confirming dates directly with customers and comparing contract terms with system records and emails.