Auditing You Decide Activity
Worksheet for You Decide
Questions:
Q1: Discuss how the SEC has influence (if any) over the audit of Smackey Dog Foods, Inc.
Solution:
Since Smackey is a private company, the SEC regulations are not required. The SEC requires only public companies to offer full disclosure on their financial statements. Private companies are not bound to such strict disclosure requirements.
Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client?
Solution:
There are four things that an auditor needs to assess prior to performing an audit: 1. The auditor must decide whether or not to accept the audit 2. The auditor must understand the client’s needs for the audit which will aid the auditor in planning out the audit 3. The auditor and client must come to an agreement about “the terms of the engagement” (Arens, etal, 2010) 4. The auditor must develop a strategy and gather all auditors and specialists
When it comes to Smackey: 1. The auditor accepted Smackey as a client 2. The auditor was informed that Smackey needs the audit to obtain more financing from the bank – the bank required an audit 3. The auditor and Smackey need to talk and come to an agreement about the “terms of the engagement” (Arens, etal., 2010) as it does not appear that has yet occurred 4. Since the auditor has never audited a dog food manufacturer before, aside from Peter, Ben and Maureen (the auditors assigned to this audit), they may want to hire a specialist who has audited this type of business in the past
Q3: Discuss the 4 stages of the audit and the major activities performed by the auditor in each phase. Give an example of how each of these specifically applies to the Smackey Dog Food, Inc audit. For instance, examine the apparent internal control weaknesses and possible negative outcome of each.
Solution:
I: Plan and design. The auditor must know what the client is
Questions:
Q1: Discuss how the SEC has influence (if any) over the audit of Smackey Dog Foods, Inc.
Solution:
Since Smackey is a private company, the SEC regulations are not required. The SEC requires only public companies to offer full disclosure on their financial statements. Private companies are not bound to such strict disclosure requirements.
Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client?
Solution:
There are four things that an auditor needs to assess prior to performing an audit: 1. The auditor must decide whether or not to accept the audit 2. The auditor must understand the client’s needs for the audit which will aid the auditor in planning out the audit 3. The auditor and client must come to an agreement about “the terms of the engagement” (Arens, etal, 2010) 4. The auditor must develop a strategy and gather all auditors and specialists
When it comes to Smackey: 1. The auditor accepted Smackey as a client 2. The auditor was informed that Smackey needs the audit to obtain more financing from the bank – the bank required an audit 3. The auditor and Smackey need to talk and come to an agreement about the “terms of the engagement” (Arens, etal., 2010) as it does not appear that has yet occurred 4. Since the auditor has never audited a dog food manufacturer before, aside from Peter, Ben and Maureen (the auditors assigned to this audit), they may want to hire a specialist who has audited this type of business in the past
Q3: Discuss the 4 stages of the audit and the major activities performed by the auditor in each phase. Give an example of how each of these specifically applies to the Smackey Dog Food, Inc audit. For instance, examine the apparent internal control weaknesses and possible negative outcome of each.
Solution:
I: Plan and design. The auditor must know what the client is
References: A Arens, R. Elder, M. Beasley (2010). Auditing & Assurance Services and Integrated Approach. NJ: Prentice Hall. Chapter 7--Accepting the Engagement and Planning the Audit. http://ruby.fgcu.edu/courses/cpacini/courses/acg4632/ch7audnotes.pdf Chapter 16 Completeing the Tests in the Sales and Collection Cycle. ccba.jsu.edu/ccba/.../jzanzig_Auditing%20Ch%2016%20Lecture.ppt