string(55) ‘ commissions to sales people based on predicted sales\. ‘
Thea, nice focus on the daily news! You solved almost every query competently and thoroughly. The only question you could have done better on is Q10 for more detail on the guidelines that apply..
Thank you! Worksheet for You Determine Name Thea Zental____ Training course Code AIR CONDITIONER 555_____ Quality ___Date 02/19/2012 Questions: Q1: Discuss the way the SEC has influence (if any) over the audit of Smackey Puppy Foods, Incorporation. Solution: The SEC (Securities and Exchange Commission) contains a great affect on the examine of Smackey Dog Food, Inc., which is conducted by Keller Certified public accountants. When auditing a widely held company, auditors need to observe concepts.
The ethical principles of the American Institute of Qualified Public Accountancy firm (AICPA) Code of Professional Conduct happen to be independence, duties, the public curiosity, integrity, objectivity and independence, due proper care, and scope and nature of services. More specifically, taxation team members are required to be objective and 3rd party with regard to the audit by maintaining objectivity and being free from conflicts appealing in discharging professional duties and by becoming independent actually and appearance once providing auditing and other attestation services.
Through this one are able to see how important the SEC is. Within the Sarbanes-Oxley Act of 2002, auditors must be objective and independent normally legal calamit� can be incurred. Even though the above mentioned standards will be imposed for audits of public companies, they can also be applied to the audit of the non open public company like Smackey Puppy Foods, Inc. Q2: Talk about the essential actions involved in the first planning of an audit. Just how do these all specifically for the Smackey Dog Foodstuff client? Remedy: First the audit staff needs to understand the client’s organization and market.
It can be profitable for the audit company to have encounter in having audited other food maker in organizing and executing the taxation for Smackey. So far, users of the Taxation team, the audit manager Pete and two audit staffers Bill and Maureen, have to understand the client’s business and sector. The next step is always to assess the customer’s business risk. Business risk is the risk that actions by how much a company (here: Smackey) will certainly fail to accomplish its goals. In this activity, the review team analyzes the risk of materials misstatements as a result of Smackey’s business risk.
For instance , the high wastage in Smackey’s Finest Dog department presents a whole lot of organization risk, and for that reason material misstatement risk. Subsequent, the review team can perform primary analytical techniques. Keller CPAs needs to compare the performance of Smackey’s with the market (these is also competitors) to help support their initial analysis of organization risk. These analytical techniques help the taxation team indentify areas where the risks of misstatement are very excessive. Next, Keller CPA’s set materiality and assess appropriate audit risk and inherent risk.
The Smackey audit team now has to set the acceptable degree of materiality. Conditions of Smackey have to be taken into consideration in setting materiality level as this kind of level is definitely purely a family member and be subject to auditor’s judgment. Then, the audit staff is able to develop an overall taxation plan and audit system. The review plan and program should achieve the audit risk objectives in the audit crew and to present reasonable peace of mind and basis for the audit report and opinion. Q3: Discuss the some stages in the audit and the major activities performed by auditor in each period.
Give a good example of how each one of these specifically pertains to the Smackey Dog Foodstuff, Inc review. For instance, analyze the noticeable internal control weaknesses and possible unfavorable outcome of each. Solution: Level 1: Organizing and Risk assessment , During the preparing stage the audit staff will need to gain an understanding from the Smackey Puppy Foods organization and market. More specifically, the design and execution of the customer’s internal control procedures, processes and devices are analyzed and reviewed for the audit team to be able to measure the control risk for each f the transaction-related audit objective – occurrence, completeness, reliability, classification, time and submitting and summarization. After this they will assess the risk. The initial risk they could want to look at is the control risk if you take a look at how the internal controls system functions at Smackey Dog Foods. Stage two: Test of internal handles , By testing the effectiveness of the internal handles the auditor can determine the control risk that lies in the company.
The audit crew can perform testing of regulates by making questions of ideal client staff, examining documents, records, and reports managed by Smackey, observing control-related activities like the one done for the inventory methods for returned Best Boy Gourmet puppy food, and re-perform the client procedures. Stage 3: Hypostatic tests of Transactions , The Smackey audit group needs to perform substantive assessments on the amounts of the accounts receivables and inventory accounts. Moreover, substantive tests can be achieved through doing substantive testing of orders, analytical procedures and evaluation of information on balances.
By running tests of transactions, which is similar to evaluation of inner controls the auditor will need an invoice but this time validating the budgetary amount in the transaction. Stage 4: Audit Completion , At this stage, the audit group compiles a written report to Smackey’s management as regards matters that came to the team’s attention throughout the audit, examines and reviews the taxation evidence received in the examine, and views the taxation opinion to get issued depending on the evidence attained Q4: Explain Keller CPAs’ responsibilities linked to communications regarding internal control matters.
What internal handles issues do you identify? Remedy: According to auditing specifications and specialist conduct the auditor is needed that the auditor relay data, in writing, to management and those charged with governance, significant deficiencies and material disadvantages identified in an audit. This internal control issues were found in relation to the audit for Smackey Dog Foodstuff, Inc. and thus have to be disseminated to ideal people within just Smackey: 1 ) Granting of commissions to sales people depending on estimated revenue.
You go through ‘Smackey Doggie Food’ in category ‘Essay examples’
This internal control issue gives risks in relation to the company’s money as sales agents might be paid for sales not made, and there is no return process intended for commissions taken care of this type of deal. 2 . Segregation of responsibilities as regards the handling of inventory. With only one person assigned with all the preparation and approving every inventory records, the changes of fabric misstatements will be high. 3. Lack of control procedures and guidelines in handling came back dog foods which presented opportunities in which employees collect returned items.
Lack of control procedures and guidelines in handling and recording accounts receivable. This is much more essential now as a major consumer which signifies 31 % of total sales is definitely experience economical difficulty. Moreover, the emergency of these types of procedures and rules is in lumination of the size of receivables (29 % of total assets). Q5: You decide that you can address Smackey Dog Meals, Inc. ‘s accounts receivables through caract�re. Discuss the various types of confirmations and what forms you will apply and why. Solution:
Once auditing you will find two types of accounts receivable confirmation, which can be positive and negative certitude. Positive Affirmation , Is known as a request by the debtor to confirm whether the equilibrium as stated around the request is correct or inappropriate. Two types of positive affirmation are write off confirmation kind and invoice confirmation. Blank Confirmation Form , Would not state the amount of the verification but demands to both fill the balance in or perhaps furnish more information. Invoice Confirmation , This is where instead of an entire account balance becoming confirmed an individual transaction is definitely confirmed.
Adverse Confirmation , This is when there exists a disagreement on the stated harmony In relation to Smackey dog foods I would put into practice an Bill confirmation based upon the info trained with seems to be a fantastic place to start credit reporting balances could to be directly linked to the invoices. Taking into mind the quantity of returns and just how they would directly affect the invoice that was paid but returned also means that any cash that was made on that invoice has also been returned. Q6: What are difficulties factors impacting sample size for credit reporting accounts receivable? Solution:
Factors affecting the sample size for credit reporting accounts receivable are as follows: Tolerable accounts receivable and financial statement misstatement, Inherent risk, which can be dependent on the size of total accounts receivable, the quantity of accounts, prior-year results, and expected misstatements, Control risk, Achieved detection risk based upon other hypostatic tests, and Type of affirmation. Generally a good confirmation requires a smaller number of sample sizes. Q7: An important issue in confirming the stopping balance in property, herb and machines are the possibility of legal encumbrances.
Talk about what certain concern do you have. Describe the procedures your firm will perform to acquire evidence regarding existing legal encumbrances. Option: Here are the procedures that Keller Certified public accountants will need to perform to obtain evidence about existing legal encumbrances include: 1 ) Inquiry with property, herb and gear custodians installment payments on your Review of a few minutes of gatherings 3. Overview of items known during house, plant and equipment inventory observations some. Confirmation in the client’s financial obligations 5. Reading and reviewing lease contracts 6.
Reading and critiquing property, plant and products purchase deals and deals The above methods aim to assess whether encumbrances and liens to the real estate, plant and equipment have been identified and whether real estate currently pledged as collateral on a loan has not been distributed or broken. Q8: The customer wants to understand if you will probably be present at the year-end inventory. What is your decision and for what reason? What part or activities will you consider at the products on hand if you decide to go to the inventory. Why? Answer: I think it is crucial for the audit crew to be with the year-end inventory.
The reason for this being is that way the audit team can see just how Smackey Dog food works an inventory examine. Secondly, they can take part in the inventory themselves by observation, as well as physical checking and counting of the inventory. After deciding to attend I would request a copy with the inventory guide and also request the ability to check the inventory along with the rest of the staff. By getting a practical check this allows the auditors to see if the controls above inventory work and that the inventory check prospect lists is correct and states all of the inventory that Smackey Puppy foods offers.
Q9: With the general half a dozen functions that comprise the products on hand and warehousing cycle pertaining to Smackey Doggie Foods, Incorporation., identify the related documents and/or records that would be used. From your examination of the interior controls relevant to the products on hand and warehousing cycle of Smackey Doggie Foods, Inc., what inner control disadvantages exist? Option: The six general functions that make up the client’s products on hand and warehousing cycle will be: 1 . Processing of order orders , purchase requisitions, quotations from suppliers, and purchase orders installment payments on your Receipt of purchased supplies , acquiring report 3.
Storage of materials or perhaps inventory , materials requisition form 5. Processing recycleables , job cost bed sheet, process cost sheets a few. Storage of finished products , revenue invoice, sales order type. 6. Delivery finished goods , shipping form and invoices. The internal control disadvantages that exist based on the six functions that make up the warehousing cycle mentioned previously earlier the possible lack of procedure collection for controlling the large amount of delivered dog food. There is also absolutely nothing stating that they can record the transaction when the dog foodstuff is went back so that can also mean they never got the profit off of the books.
The other weak point is separating of obligations in the storage place Kim alone has control of inventory, creation and shipping and delivery. That is too much for one person to manage especially when her attention have been taken by one particular specific line of food the fact that company generates. Smackey has to bring in individuals to a great extent to help Betty and reduce her workload. By doing this it will also reduced the risk that inventory, development or shipping could turn into misstated. Q10: Discuss in the event Keller Certified public accountants or its auditors are breaching any kind of Professional Guidelines of Perform and so why or really want to?
Solution: Several things occurred which make me believe that yes the Keller Certified public accountants are breaking some of the guidelines of execute. One issue that stands apart immediately is usually Pete and Allen’s romance. Pete and Allen have actually discussed the taxation over a couple of beers that ought to not have occurred. This creates a conflict of interest and independence. An additional problem that Keller CPAs are confronted with is the insufficient knowledge of the industry lead with signing up for the examine in a crunched time frame to complete it in.
Using this method the possibly of the audit team increasing enough understanding of the industry to perform a great audit about standards inside the small time frame is going to be a job in itself. If the audit team had a bigger time frame this could be ok in such a little time frame they will not be able to dedicate that much time learning the industry and this could lead to not being able to perform a great audit following all review standards. Q11: Discuss the CPA business’s legal the liability concerns with this audit in the event they make a material unintentional or deliberate mistake. Include any other legal liability worries regarding possible Professional Secret violations.
Answer: The CPA firm can face a few serious legal consequences in the event they make a great unintentional or intentional mistake. The main financial obligations that I discover between the review team as well as the Smackey Doggie Food examine itself is usually liability to clients, and liability to third parties. Responsibility to clients – In this case this would be in which if the auditors missed virtually any fraud developing and therefore the client can turn around and drag into court the Keller audit crew. In terms of Smackey Dog Food directly, one area of likely fraud is in the inventory office and the went back inventory location.
With the not enough separate of duties plus the fact that two employees essentially run the complete inventory department it might not really be intentional fraud it maybe simply a misstatement and lack of settings over products on hand that induced it. However the auditor must discover this to avoid any kind of legal action. Liability to 3rd parties – This occurs if the Keller auditor staff fails to find any materials misstatements around the financial statements and then the bank would loans Smackey money, but soon after Smackey moves bankrupt. This could open up the auditor in order to be sued by the traditional bank for not capturing the misstatements on the financials.
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