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
Publicly traded companies are subject to the reporting and disclosure requirements of the Securities Exchange Commission (SEC). The laws that govern the securities industry were established to provide transparency to investors, creditors and shareholders alike. According to Hoyle, Schaefer & Doupnik, (2015) there are seven major disclosure requirements, the first being a five-year summary of operations to encompass sales, assets, income from continuing operations. Followed by a description of business activities, a three year summary of industry segments to include foreign and domestic operations, a list of company directors and executives, quarterly market price of common stock for the last two years, restrictions on the company’s ability to continue paying dividends, and finally, an analysis of the company’s financial condition, changes in the conditions and results of operation.
3. Assuming that processing starts at 7 am on a “busy” day, present the situation during such a day, by constructing an inventory build-up diagram for bins and trucks.
Moreover, the auditor should preform test for effectiveness of internal controls. He may interview management by asking questions on the process of the transactions and operational activities. He may discuss with management the process of some transactions from beginning to end and then test it by using sample testing. Also he/she should make sure that there is proper control of activities; policies and procedures for adequate segregation of duties are met.
Since the majority of US thrive on the use of credit cards, the accounts receivables for a company may no longer be on a cash-to-cash basis. A company may need to sell these accounts to other companies who specialize in handling accounts receivables if they need cash more quickly or if it would be too costly to perform the necessary billing to collect on the account.
For example, the distributors place the order Monday for a Saturday delivery and have until Wednesday to make changes based on customer demand. The demand for bread is higher at the beginning of the month and the third week of the month. Shawn can access any changes the distributor makes with their handheld devices such as increases or decreases and more importantly days sales and days of service. Once the order is received, it is transmitted to production and
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,
3. The warehouse notifies HQ about receiving the goods and how much of each product is in storage.
Due to state laws being vague, corporate charters were able to avoid the question of
Huge amounts of personnel hours are expended during this process. When a company goes public it becomes the property of the shareholders and thus is required to report all of their financial records and plans for the future.
about the processes and problems. As a first step, Stalk and Margolis identified receiving, inventory
4. The stock and supplier manager have to do a report to the boss and wait for his approbation before purchasing.
Moving on to the new sales returns system, the responsible department is the receiving department. After receiving the products returned by a customer, action has to be taken. The customer may need the company to replace the (damaged or wrong) goods that have been returned, or the customer may want a refund. The company may also issue a credit memorandum to the customer, informing that the outstanding balance is reduced by the returned stock’s amount. One way or another, the accounting records must be updated once more.
Privately held companies do not need to file quarterly earnings reports with the Securities and Exchange Commission (SEC) like they do after
The sequence of a standard audit starts with identifying risks, then assessing the design of controls and finally testing the effectiveness of the controls. Skillful auditors can add value in each phase of the audit.
Emerald Article: Audit evidence: the US standards and landmark cases Rocco R. Vanasco, Clifford R. Skousen, Richard L. Jenson