Smacky Dog Food Inc Essay

1908 words - 8 pages

Worksheet for You Decide

Name Course Code 555-10195_ Grade ___/ Date 10/20/2013

Questions:

Q1: Discuss how the SEC has influence (if any) over the audit of Smackey Dog Foods, Inc.

Solution:

The SEC (Securities and Exchange Commission) has substantial influence on the audit of Smackey Dog Food, Inc. This can be seen in the audit standards that have to be followed by the established independence of the auditors involved in the Smackey audit. In the audit of public listed companies which includes Smackey, the auditors need to observe several principles. Independence is one of the six principles exhibited by the AICPA and the others include responsibilities such as the ...view middle of the document...

The audit team assesses the risk of material misstatements arising from Smackey’s business risk. An example of this is, the high wastage in Smackey’s Best Dog division that presents a lot of business risk, and material misstatement risk.
3. Third perform initial analytical procedures. Keller CPA’s need to compare the performance of Smackey’s with the industry to further support its initial assessment of business risk. These procedures help the audit team find and exam areas where the risks of misstatement are very high.
4. Fourth set materiality and asses acceptable audit risk and inherent risk. The Smackey audit team now can set the acceptable level of materiality. Allowances of Smackey have to be taken into account in setting materiality level based on the auditor’s judgment.
5. Fifth develop an overall audit plan and audit program. The audit plan and program aims to achieve the audit risk objectives of the audit team and to provide reasonable assurance and basis for the audit report and opinion.
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:

The four stages of audit and how each of the major activities specifically applies to the audit of Smackey Dog Food, Inc. are:
1. First planning and risk assessment. The risks can be assessed by understanding Smackey’s business and their industry. To be specific, the design and implementation of the client’s internal control procedures, processes and systems are studied and analyzed for the audit team to able to assess the control risk for each of the transaction related audit objective, which are: occurrence, completeness, accuracy, classification, timing, and posting and summarization.
2. Second test of internal controls. The audit team can perform tests of controls by making inquiries of appropriate client personnel, examining documents, records, and reports, observing control-related activities such as the one done for the inventory procedures for returned Best Boy Gourmet dog food, and re-doing client procedures.
3. Third substantive tests. The audit team needs to do substantive tests on the balances of the accounts receivables and inventory accounts. Substantive tests can be done through doing substantive tests of transactions, analytical procedures, and tests of details of balances.
4. Fourth audit finalization. The audit team compiles a report for Smackey’s management in regards that come to the attention of audit team. This includes the audit, evaluations, and reviews based on the audit evidence obtained during the audit.
Q4: Describe Keller CPAs’ responsibilities related to communications regarding internal control matters. What internal controls issues do you identify?

Solution:

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