Auditing You Decide Activity Essay
Q1: Discuss how the SEC has influence (if any) over the audit of Smackey Dog Foods, Inc.
Since Smackey is a private company, the SEC regulations are not required. The SEC requires only public companies to offer full disclosure on their financial statements. Private companies are not bound to such strict disclosure requirements.
Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client?
There are four things that an auditor needs to assess prior to performing an audit: 1. The auditor must decide whether or not to accept the audit 2. The auditor must understand the client’s …show more content…
With Smackey, I would take a sampling from the accounts receivable and request positive confirmation. I would especially do this with their biggest client. If customers do not respond, auditors need to examine documents to verify shipments and recording of payments. Q6: What are the major factors affecting sample size for confirming accounts receivable?
“Tolerable misstatement, inherent risk, control risk, achieved detection risk from other procedures, type of confirmation” (Chapter 16 Completing the Test in the Sales and Collection Cycle)
Q7: A major issue in verifying the ending balance in property, plant and equipment is the possibility of legal encumbrances. Discuss what specific concern do you have. Describe the procedures your firm will perform to obtain evidence about existing legal encumbrances.
Some of the concerns I would have include: 1. Any liens against the property due to judgments filed against Smackey for unpaid debts to suppliers. These judgments would attach to the property. 2. The possibility of a