Ac555 Week 7 You Decide

Topics: Audit, Balance sheet, Accounts receivable Pages: 5 (1715 words) Published: April 21, 2013
Week 7 You Decide Course Project
Keller Graduate School of Management

Question 1
The Securities and Exchange Commission (SEC) would only have influence over Smackey Dog Foods, Inc. if they are a publicly listed company or if they register to become a publicly traded company. The SEC assists investors by providing reliable information to investors so they can make informed investment decisions. If Smackey Dog Foods, Inc. becomes a public company, they would need to provide financial statements along with an opinion about the financial statements by an independent public accountant along with the registration statement and subsequent financial reports (Arens, Elder, and Beasley, 2010). Question 2

There are four things involved in the initial planning of an audit. According to Arens, Elder, and Beasley, 2010, they are: 1. “The auditor decided whether to accept a new client or continue serving an existing one, 2. The auditor identifies why the client wants or needs an audit, 3. To avoid misunderstandings, the auditor obtains an understanding with the client about the terms of the engagement, and 4. The auditor develops an overall strategy for the audit, including engagement staffing and any required audit specialists.”

In relation to Smackey, Keller CPA’s need to make the decision as to whether or not they want to take Smackey on as a new client. Once that decision has been made, Keller needs to understand why Smackey wants or needs the audit. Smackey needs the audit in order for the bank to grant a new loan for expansion. Keller will now need to meet with Smackey’s managers to discuss and document what services they are going to be providing. Once that is determined, Keller will need to plan the audit strategy and determine if they are going to need to hire additional staff or any specialty staffing. Since they have no experience auditing a dog food company, Keller may need to bring in an auditor who has experience in this type of manufacturer. Question 3

According to Ayers, et al, 2010 the four phases of the audit are “plan and design an audit approach, perform tests of controls and substantive tests of transactions, perform analytical procedures and tests of details of balances, and complete the audit and issue an audit report.” In the plan and design stage of the audit, the auditor needs to understand the business and its environment, understand internal controls and asses control risks and risk of material misstatement (Ayers, et al, 2010). The second stage of the audit is where the test of controls and substantive tests of transactions are completed. In the third stage, analytical procedures and tests of details of balances are accomplished. In the fourth and final stage, the audit has been completed and the auditor comes to an overall conclusion and issues the audit report (Ayers, et al, 2010).

In the first phase of the audit, Keller is going to have to gain an understanding of Smackey. They can do this by researching dog food manufacturing businesses and the industry as a whole. If necessary, they can hire an auditor who has experience in the industry to assist with the audit. One of the internal controls Keller needs to look at is the adequate separation of duties. In the warehouse, one person monitors production and shipment of their regular line of dog foods and is also responsible for preparing and approving all inventory records. Another control that needs to be examined is independent checks on performance. Since the sales manager is afraid to fly and can’t really drive, there is nobody checking on the performance of the sales people. With no monitoring of the sales people and their commission being paid in advance based on projections, close monitoring of sales should be accomplished.

In performing a test of controls, the physical control over assets and records will need to be done. How the waste and returned dog food is being handled should be reviewed. Seeing the...
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