Sean Raczkowski
Acct 555
Course Project
Audit of Smackey Dog Foods, Inc.
The audit of Smackey Dog Foods, Inc. involves high business risk, inherent risk, risk of fraud, and control risk. The engagement should be cautiously considered and performed with a high degree of professional care. The eight stages of planning the audit help to identify the risks involved, areas of concern specific to the Company, and methods that can be used to reduce the audit risk to acceptable levels. The eight stages are considered in detail below.
Stage I: Acceptance of the Engagement
The first audit planning activity involves the decision of whether to accept the audit engagement. For several reasons, the engagement with Smackey Dog Foods, Inc. may expose Keller CPAs to undue liability. However, as the Company will not be filing financial statements with the SEC, liability will be limited to foreseen and foreseeable users and the Company itself. We will look at a few specific items in some detail. Smackey Dog Foods, Inc. is a relatively young and rapidly growing company. With sales growth that is far outstripping their competitors and expanding operations, the company is in a vulnerable period. The majority of small businesses go bankrupt within the first five years of operation, and the course that the Company follows now has the potential to be either beneficial or disastrous. As management is basing their decision expand on projections developed by the sales teem, the accuracy
“The nature and extent of planning activities that are necessary depend on the size and complexity of the company, the auditor 's previous experience with the company, and changes in circumstances that occur during the audit. When developing the audit strategy and audit plan, the auditor should evaluate whether the following matters are important
In business there are no guarantees for success. Skills, knowledge, great motivation and honest evaluation of ability to carry out and then manage the operations are just some of the requirements that determine the probability of the successful project. Success is never automatic and does not rely on luck. There are no ways to foresee or eliminate all of the risks that might affect successful operation of a new business. However detailed planning, thorough analysis and well-carried out organization create good potential for a new business. In the provided case study, we will assess the probability of success for Icedelights franchise in Florida. Analysis will be done through evaluation of each step in the decision making process, close
Auditors also evaluate the client’s recording of transactions by verifying the monetary amounts of transactions, a process called substantive tests of transactions. For example, the auditor might compare the unit selling price on a duplicate sales invoice with the approved price list as a test of the accuracy objective for sales transactions. Like the test of control in the preceding paragraph, this test satisfies the accuracy transaction-related audit objective for sales. For the sake of efficiency, auditors often perform tests of controls and substantive tests of transactions at the same time.
Review of ABC Company and the directions it is targeting. The strategy of the company is to lift the expected sales in an aggressive fashion, with the expected end target being to triple the current levels. The plan is to push sales into the targeted range of $3 million within 3 years versus the current amount which sits at $1.2 million. We will identify the perceived risk factors that may impact this aggressive strategy and its successful execution. The following will be those risk factors:
* Our company’s sales forecast has been based on performance from previous years along with market circumstances. We are looking at the future of the business objectively which we then can evaluate past to
4. The final stage is the Audit Report. This is when all of the above come together to create the report. This report will list any recommendations that the auditors feel are areas in need of changes. In regard to Smackey’s, the auditors would recommend that Kim have more interaction with Henry. She needs to know more about what is happening at the loading dock. Kim needs a firsthand look at the loading dock and the paperwork. They would address the fact that Jillian puts too much trust in her sales team and is unaware of actual projections. Because of her lack of accounting knowledge, she has allowed
The audit team focused on preforming groundwork analytical procedures. A comparison of the performance of Smackey’s Dog Foods Inc to other similar industries was used to validate the original assessment of the risks. Performing the procedures helped detect areas that pose a high risk of the material misstatements. Another important part of the planning of the audit was to set a balance of materiality that is appropriate. The situations that
Smackey Dog Foods, Inc. is a privately held corporation and not required to follow guidelines set forth by the American Institute of Certified Public Accountants. Keller CPA’s follow American Institute of Certified Public Accountants (AICPA) guidelines for private or public companies. Generally Accepted Auditing Standards (GAAS) governs audits for privately held companies.
This case established that an auditor could be sued by a primary beneficiary for damages from negligence. A primary beneficiary is a party that has a direct benefit from the audit. Non-privity parties could also sue for gross negligence. This increased the auditor’s legal exposure to third parties. The SEC of 1934 reflected these changes and many others; one significant change was that auditor’s had a much higher litigation risk due to their new responsibility to third parties.
Also, teething problems with marketing, operations etc might not lead to optimum sales. Therefore, we will project only 60% of this figure as first year sales and use the estimated figure as the sales figure for Year 2. Over the planning period, starting from Year 2 onwards, sales are expected to grow at a rate of 3.9% every year, in line with industry estimates of the average growth of the restaurant industry in the US (Source: Mintel International, cited in section 6.0).
During the planning phase of the audit, you met with Pinnacle’s management team and performed other planning activities. You encounter the following situations that you believe may be relevant to the audit:
Keller CPA does have potential liability to Smackey, third parties and under criminal law. Since Smackey is not publicly traded there would not be a liability under the federal securities. It is important to note that Keller CPA should take careful note of their liability to the Bank as it is a known third party who as requested the audit of these financial statements to help with a decision to provide a loan to Smackey. Therefore the largest concern would be if Keller CPA made a material mistake with regards to the audit procedures surrounding the accounts receivable which will be used as collateral for the loan, and especially if they are negligent in their actions.
In this paper, we present a detailed financial analysis of the Regency Blue Ribbon Restaurant. In the analysis, we include a detailed calculation of the 2007, 2008, 2009 and 2010 profitability, financial and business activity ratios. The profitability ratio calculation is limited to the calculation of Gross Profit, Net Profit and Return on Owner's Equity (ROI). The Financial stability ratio analysis involves the calculation of the Working capital/current and Debt while the business activity ratio analysis involves the calculation of the accounts receivables turnover. While performing the above calculations, the credit sales are pegged at 10% of the total sales while the credit terms are paged at net 30 days. After the calculation and analysis, we perform a further analysis aimed at comparing the results with industry averages. The actions to be taken in order to achieve future results that are close to or even better than the industry averages are then presented. We then discuss the future concerns that are identified in the given forecast as well as the necessary actions for addressing them.
Through this paper, I will evaluate the history of small business, Gus Hot dogs by showing the rise of their growth through one common named productive manufacturer, beef hotdogs.
The increase in EPS by 75.71% (computed as: {[.14-.034] / .14} x 100%) for FY2013 resulted in the decrease of price per earning (P/E) ratio in FY2014 by 77.34% (computed as: {[41.18-9.33] / 41.18}. The decrease was substantial. Yet, the financial performance in 2014 is certainly a recovery period for the business, especially in considering the 253% growth in EPS (calculated as: {[.12-.034] / .034} x 100%). This meant that the value of investment of Patties had become more attractive to investors. The share prices of Patties that are traded in the market are reasonably lower than the price per earning ratio because