Smackey Dog Food

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  • Topic: Audit, Auditing, Internal control
  • Pages : 8 (2442 words )
  • Download(s) : 378
  • Published : November 19, 2012
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Thea, nice work on the paper!  You answered almost every question competently and thoroughly.  The only question you might have done better on is Q10 for more detail on the rules that apply.. Thank you!

Worksheet for You Decide
Name Thea Zental____ Course Code AC 555_____ Grade ___Date 02/19/2012

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 a great influence on the audit of Smackey Dog Foods, Inc., which is conducted by Keller CPAs. When auditing a publicly held company, auditors need to observe principles. The ethical principles of the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct are independence, responsibilities, the public interest, integrity, objectivity and independence, due care, and scope and nature of services. More specifically, audit team members are required to be objective and independent with regard to the audit by maintaining objectivity and being free of conflicts of interest in discharging professional responsibilities and by being independent in fact and appearance when providing auditing and other attestation services. Through this one can see how influential the SEC is. Under the Sarbanes-Oxley Act of 2002, auditors have to be objective and independent otherwise legal sanctions can be incurred. Even though the above mentioned standards are imposed for audits of public companies, they can also be applied to the audit of a non public company like Smackey Dog Foods, Inc.

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:
First the audit team needs to understand the client’s business and industry. It can be profitable for the audit firm to have experience in having audited other food manufacturer in preparing and performing the audit for Smackey. So far, members of the Audit team, the audit manager Pete and two audit staffers Ben and Maureen, have to understand the client’s business and industry. The next step would be to assess the client’s business risk. Business risk is the risk that measures by how much a company (here: Smackey) will fail to achieve its objectives. In this activity, the audit team assesses the risk of material misstatements arising from Smackey’s business risk. For example, the high wastage in Smackey’s Best Dog division presents a lot of business risk, and therefore material misstatement risk. Following, the audit team will perform preliminary analytical procedures. Keller CPAs needs to compare the performance of Smackey’s with the industry (these are other competitors) to further support its initial assessment of business risk. These analytical procedures help the audit team indentify areas where the risks of misstatement are very high. Next, Keller CPA’s set materiality and assess acceptable audit risk and inherent risk. The Smackey audit team now has to set the acceptable level of materiality. The circumstances of Smackey have to be taken into account in setting materiality level as this level is purely a relative and subject to auditor’s judgment. Then, the audit team is able to 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:
Stage 1: Planning and Risk assessment - During the planning stage the audit team will need to gain an understanding of the Smackey Dog Foods business and industry. More specifically, the design and...
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