Ac555 Week 7 You Decide

Week 7 You Decide Course Project Keller grad School of Management drumhead 1 The Securities and Exchange Commission (SEC) would only entertain influence everyplace Smackey Dog Foods, Inc. if they argon a mankindally listed comp either or if they register to become a realityly traded comp some(prenominal). The SEC assists investors by providing re apt(predicate) nurture to investors so they stand make cognizant investment decisions. If Smackey Dog Foods, Inc. ecomes a public company, they would extremity to provide pecuniary statements on with an opinion ab disclose the financial statements by an independent public accountant on with the registration statement and subsequent financial accountings (Arens, Elder, and Beasley, 2010). school principal 2 at that place be four things involved in the sign planning of an analyse. According to Arens, Elder, and Beasley, 2010, they argon 1. The attender decided whether to accept a invigorated thickening or continue circum stances an existing unity and only(a), 2.The attendee identifies wherefore the client wants or indigences an size up, 3. To avoid mis sayings, the freightervassor obtains an understanding with the client about the terms of the use, and 4. The tender develops an everywhereall dodge for the audit, including engagement staffing and any required audit specialists. In relation to Smackey, Keller CPAs consume to make the decision as to whether or non they want to take Smackey on as a new client. in one case that decision has been made, Keller need to understand why Smackey wants or needs the audit.Smackey needs the audit in fix for the trust to collapse a new loan for expansion. Keller forget now need to meet with Smackeys managers to discuss and document what services they argon sacking to be providing. Once that is determined, Keller pull up stakes need to plan the audit strategy and determine if they argon going to need to hire additional staff or any specialty staf fing. Since they have no experience auditing a dog diet company, Keller may need to bring in an auditor who has experience in this graphic symbol of manufacturer.Question 3 According to Ayers, et al, 2010 the four phases of the audit atomic number 18 plan and plan an audit approach, cause tallys of surmounts and substantive tests of proceeding, perform uninflected procedures and tests of details of residuums, and complete the audit and gross revenue outlet an audit report. In the plan and design grade of the audit, the auditor needs to understand the business and its environment, understand inherent realises and asses go out 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, analytic procedures and tests of details of balances are accomplished. In the stern and final stage, the audit has been completed and the auditor come s 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 forage manufacturing businesses and the patience as a whole. If necessary, they can hire an auditor who has experience in the industry to assist with the audit. One of the inbred controls Keller needs to look at is the fitting separation of duties. In the warehouse, one individual monitors production and shipment of their incessant pains of dog foods and is likewise responsible for preparing and approve all caudex records. A nonher control that needs to be examined is independent checks on performance.Since the sales manager is afraid to cut down and cant really drive, on that point is nobody checking on the performance of the sales heap. With no monitoring of the sales people and their counselling macrocosm paid in advance establish on projections, impede monitor ing of sales should be accomplished. In performing a test of controls, the sensible control over assets and records go out need to be do. How the waste and returned dog food is being handled should be refreshed. Seeing the employees pickings bags of dog food that have been propel away is a red gladiolus for parody by the employees.Examining documents related to the stock impart need to be done as all breed records are prepared and approved by one person with little take stock left(a) in the warehouse but a lot of returns left on the fare dock. This can lead to an understatement of lineage, understatement of sales returns, and blowup of accounts receivable which is the proposed collateral for the new loan. uninflected procedures should be applied to the determination of commission that is being paid to Smackey salespeople.The commissions on the sightly are off by 11 per centum showing that they may not be reasonable. The auditors also need to perform the analytical procedures for inventory to determine if the inventory is being misstated. This would be a tutelage due to the join of waste and returns. The test of details of balances will need to be done on the accounts receivables to determine if they are properly stated. Question 4 Keller needs to discuss the weaknesses in Smackeys knowledgeable controls with Sarah as the president and manager of operations.The infixed control issues that need to be pointed out are the lack of separation of duties in the inventory production and records, the improper classification of accounts receivables, and improper checks on performance of the sales personnel. As soon as Keller became informed of the significant deficiencies in the internal controls of Smackey, they are required to notify in writing to the governing bodies of Smackey. A management letter should also be written tolerant suggestions for ways to make improvements in the internal controls (Arens, et al, 2010).Question 5 There are some (prenominal) references of stoppage Keller can use to verify Smackeys accounts receivables. They are positive sustaination which is some type of communication direct to the account holder requesting they directly confirm whether the balance on the request is pay or incorrect (Arens, et al, 2010). There are two types of positive handicap, a hollow chit form where the recipient is chooseed to suffice in the balance of the account or an billhook chit which is where an individual invoice is confirmed instead of the entire account.There is also a negative confirmation where the recipient is only requested to respond if the balance is incorrect (Arens, et al, 2010). Due to the fact that Smackeys accounts receivable is a large severalise of the assets and they arent writing off any bad debt, Keller should use the blank confirmation form to determine if the balances of the accounts are correct. Question 6 The major factors that affect the sample size for confirming accounts receivable are the weakness in internal controls at heart the sales department, and the improper statement of accounts receivable.With no control over the sales department, on that point is a higher(prenominal) risk of fraud by collusion between the salespeople and the companies that owe money to Smackey. With almost 20 percent of the receivables classified as 90 long time or older, there is a higher risk of accounts receivable being hyperbolize by uncollectable accounts leading to a accomplishable material misstatement in the financial statements. Question 7 The concern about the surmise of legal encumbrances on verifying the expiry balance in property, plant, and equipment comes from the courting filed by the employee who was fired for not owning a dog.In order to determine the likelihood of the employee winning the suit, Keller will need to send a confirmation request to the lawyer handling the lawsuit for Smackey. The request will need to ask what is the probability of the ex employee winning the lawsuit. If there is a high probability, then the confirmation needs to include the possible amount of the award against Smackey. Question 8 With controls over inventory being deficient, Keller will be present at the year-end inventory. The auditors will forciblely learn the counting of the inventory that is in the warehouse and on the transferral dock.The auditor will also observe to assure the waste isnt include in the physical inventory count. If the sales returns arent able to be resold, then the auditor needs to ensure they arent counted in the inventory. The observation is necessary to ensure the inventory isnt overstated with what has been mindless or understated by not counting the sales returns that can be resold. Question 9 Inventory control weaknesses that exist in the inventory and entrepot cycle include controls over the physical count of inventory and pricing and digest controls. Smackey should have documents that show the reporting f the inventory that is waste and the sales returns. There should also be a review of the inventory musical accompaniment but with Kim being busy with the Best Boy epicure line, she hasnt been focusing on the regular product line. There should be documentation to show the sales returns being returned to inventory and there should be confirmation of the inventory documentation by Kim. Henry shouldnt prepare and approve the documentation one of those functions should be done by somebody else. Question 10 Pete is breaking get hold 301 Confidential Client Information by discussing some of the details of the audit with Alan over beer.Rule 301 states, A member in public practice shall not disclose any confidential client information without the particularized consent of the client (Arens, et al, 2010). Smackey didnt arrive at Pete consent to discuss the audit with his takeoff booster who also happens to be working for the bank Smackey is trying to get the loan from. Because Pete isn t aware of Alans relationship with the bank, he isnt violating Rule 101 Independence. If no(prenominal) of the auditors obtain adequate understanding of the industry or business, they will be in violation of Rule 201 General Standards, A. original Competence.Question 11 If Keller makes an intentional slide, they can be held liable to Smackey or to the bank. If the intentional mistake results in Smackey not receiving the loan, they could sue Keller for negligence. The type of mistake would determine the degree of negligence. In an unintentional mistake, Keller could still be liable but could possibly defend themselves based on nonnegligent performance. Legal liability concerns regarding the schoolmaster Rule violations are if the auditor doesnt maintain independence, follow the requirements for technical standards, and doesnt maintain confidentiality.