Smackey Dog Food You Decide Essay

1393 WordsJun 28, 20116 Pages
You Decide – Smackey Dog Foods Inc Smackey Dog Foods, Inc. is a familiar story in terms of small business start-ups. They started in a family kitchen, experienced explosive growth, and have had some troubles handling the accounting and business side of the business. My firm, Keller CPA’s, does not have specific experience with auditing a dog food manufacturer, but we certainly have a good bit of experience with similar small business accounting and auditing issues. The first thing to address is the SEC’s role or influence over Smackey Dog Foods. Since Smackey is private there is not a direct oversight or reporting role for the SEC. Indirectly, however, they help establish GAAP and have a role in how the books should be maintained,…show more content…
Performing internal tests of controls is intended to assess the operating effectiveness of those internal controls. Here the staff would select an area of control to test, perhaps inventory management and return policy. They would then look at the procedures that help prevent fraud or error, talk to management, and observe activities. They would notice there is very little control in place for this area. There is no management oversight or dock security measures, no direct recording of sales receipts, shipping labels, or matching to accounts receivable. This would be noted as an area of additional concern. The next stage is to perform substantive testing procedures, where the purpose is to collect audit evidence that the management assertions made in the financial statements are reliable and in accordance with GAAP. Since my staff is good, they would have noticed the company’s sales projections are weak in control and are overstated by around 11%. They would perform a substantive test of detail in this area by selecting a sample of items from the account balances and finding bank statements, invoices, and test of details of balances. They would likely see specifically where the over-projections are being made. Lastly, in finalization, they would compile a report to management detailing any important matters, evaluating the audit evidence, and considering the type of audit opinion that should be reported. Specifically here, they would

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