Smackey Dog Foods, Inc. by Ljubomir

Only available on StudyMode
  • Download(s) : 495
  • Published : January 11, 2013
Open Document
Text Preview
External Auditing (AC 555)
Professor: Marie Wang
Project: You Decide- Smackey Dog Foods, Inc. by LJubomir Gataric

Questions:

Q1:Discuss how the SEC has influence (if any) over the audit of Smackey Dog Foods, Inc. Solution:
The SEC assists in providing investors with reliable information upon which to make investment decision. The Securities Act of 1933 requires most companies planning to issue new securities to the public to submit a registration statement to the SEC for approval. The Securities Exchange Act of 1934 provides additional protection by requiring public companies and others to file detailed annual reports with the commission. Smackey Dog Food, need to file next forms: Form S-1. “S” forms apply to the Securities Act of 1933 and must be completed and registered with the SEC when a company plans to issue new securities to the public. The S-1 form is the general form used when there is no specifically prescribed form. Form 10-Q. This report must be filed quarterly for all publicly held companies. It contains certain financial information and requires timely auditor reviews of the financial statements before filing with the commission. 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:

Audit Planning consist of the following:
1. The auditor decides whether to accept a new client or continue serving an existing one. This determination is typically made by an experienced auditor who is in a position to make a important decisions. The auditor wants to make this decision early, before incurring any significant cost that cannot be recovered. With Smackey Dog Food, Keller CPA had time to devote to the audit and therefore accepted the job. 2. The auditor identifies why the client wants or needs an audit. This information is likely to affect the remaining parts of the planning process. 3. To avoid misunderstandings, the auditor obtains an understanding with the client about the terms of the engagement. With Smackey Dog Food, the auditors sent over the audit staffers to assess the client and plan the audit. 4. The auditor develops an overall strategy for the audit, including engagement staffing and any required audit specialist. 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:

Plan and Design an Audit Approach (Phase I)
For any given audit, there are many ways in which an auditor can accumulate evidence to meet the overall audit objective of providing an opinion on the financial statements. Two overriding considerations affect the approach the auditor selects: 1.Sufficient appropriate evidence must be accumulated to meet the auditor’s professional responsibility. 2.The cost of accumulating the evidence should be minimized. The first consideration is the most important, but cost minimization is necessary if CPA firms are to be competitive and profitable. If there were no concern for controlling costs, evidence decision making would be easy. Auditors would keep adding evidence, without concern for efficiency, until they were sufficiently certain that there were no material misstatements. Concern for sufficient appropriate evidence and cost control necessitates planning the engagement. The plan should result in an effective audit approach at a reasonable cost. Perform Tests of Controls and Substantive Tests of Transactions (Phase II) Before auditors can justify reducing planned assessed control risk when internal controls are believed to be effective, they must first test the effectiveness of the controls. The procedures for this type of testing are commonly referred to as tests of controls. For example, assume a client’s internal controls require...
tracking img