You Decide Week 5

Good Essays
Questions:

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

Solution:

The SEC’s influence in Smackey Dog Foods, Inc. can be observed in the audit standards that are being upheld. More specifically, the SEC developed auditor standards that must be followed. In the case of Smackey, we can see that the implementation of SOX has mandated that auditors be independent entities for publically held companies. Privately held companies are subject to these rules as well.

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:

Initial audit planning has several activities. Those include:
1. Understand the client’s business and the industry as a whole.
In the case of Smackey’s, the audit firm would do well to enlist the help of those who have taken part in an audit in the dog food business. They could lend insight into the intricacies of the business without the need to do extensive research. 2. Assess the client’s business risk.
In Smackey’s case, there are serious issues ranging from loan payment, inventory, materials shortage, sales commission overpayment, a pending lawsuit, possible buyer loss, and an interesting accountant/accounting system. After a cursory look, the risk seems moderately high that the business could fail. 3. Perform preliminary analytical procedure.
The audit team should perform a comparison between Smackey’s and the industry standard to further understand how great the risk is that Smackey’s is presenting.

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:

1. Preparation, planning, and risk assessment

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