Dog Food Case Study Solution

1753 Words 8 Pages
Register to read the introduction… The planning and risk assessment. Obtaining the understanding of the business and the industry can primarily assess the risks. The firm needs to look at the companies internal control procedures; also the processes and systems are reviewed so the audit team can evaluate the control risk for each transaction connected audit objectives. 2. The audit team needs to test internal controls. The audit team can examine documents, records, and client personnel. The audit firm can also look at the companies control related activities like inventory procedures for returned dog food. 3. The audit firm needs to preform substantive tests on the balance of inventory and accounts receivables. Also the audit team can perform substantive tests of transactions, analytical procedures and test of details of balances. 4. The final thing the audit team needs to do is finalize the audit. The audit team will compile a report to the management of Smackey’s that dealt with the issues that came up during the audit of the company. The audit team will look over the audit evidence that was attained during the audit, and the audit team will consider the audit opinion to be issued based on the evidence hat was …show more content…
Some internal control issues that were recognized in the audit of Smackey Dog Food Inc.. 1. Giving commissions to the sale people based on estimated sales. This internal control issue presents risks to the company’s financial resources as the sale people might and have been paid for sales not made, there is no refund policy in place for the associates that get their commissions paid in advance. 2. There needs to be segregation of duties as respects to the handling of inventory. There is a single person appointed with the preparation and approving all of the inventory records, there is a risk that material misstatements are high. 3. There is little or no control of how returned dog foods are processed. There are associates that are taking returned dog food home with them. There needs to be some guidelines and procedures in place to stop this from …show more content…
There is little control of procedures and guidelines in the handling and recording of accounts receivable. Since on of the company’s clients is suffering financial difficulty this is very important. The receivables are 29% of total assets, the procedure and guidelines need to be fix and updated quickly since this is a large percentage of accounts receivables.

Q5: You decide that you will address Smackey Dog Food, Inc.’s accounts receivables through confirmations. Discuss the various types of confirmations and what forms you will implement and why. Solution: There are two accounts receivable conformation. The first one is positive and the second one is negative conformations. Positive conformation are conformations that ask debtors to confirm directly to the auditors whether the balance of the accounts receivables is correct or not. A negative confirmation requests debtors to respond only when they disagree with the stated amount in the confirmation form. The audit of Smackey Dog Food, Inc.’s accounts receivables, I will implement an invoice confirmation form under the positive confirmation. Q6: What are the major factors affecting sample size for confirming accounts receivable?

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