Auditing You Decide Activity Essay

1832 Words Nov 11th, 2011 8 Pages
Worksheet for You Decide

Questions:
Q1: Discuss how the SEC has influence (if any) over the audit of Smackey Dog Foods, Inc.
Solution:
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?
Solution:
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
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This communication would be addressed to the owners/management.
The issues with internal control at Smackey include: 1. Smackey uses Henry exclusively for all their shipping and production needs. He prepares and approves all inventory records. Since he is the only one recording this information, there is no control. He has the potential to misstate the inventory taken in, shipped out and what truly remains in inventory. 2. Due to lack of segregation of duties in the shipping and production department, auditors have observed a great deal of waste that ends up in Henry’s vehicle for him to take home. 3. The sales department is getting advances on their commissions based on each sales person’s estimation. However there are no apparent controls on how advances that are higher than actual earned commissions are returned to the company. 4. There are control issues when it comes to accounts receivable. Sarah refuses to write off any of them and many are aging. Also their biggest client may not be paying what they owe in the near future and they also may be scaling back the amount of food they purchase. Since the accounts receivable is what Smackey is using as collateral to get a bank loan, what is currently reported may be very inaccurate and misleading to the bank.

Q5: You decide that you will address Smackey Dog Food, Inc.’s accounts receivables through confirmations. Discuss the various

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