Smackey Dog Food

Thea, nice work on the paper You answered almost from each one question competently and thoroughly. The only question you might fork up ideal with(p) better onis Q10 for more detail on the rules that apply.. Thank you Worksheet for You ascertain Name Thea Zental____ Course Code AC 555_____ Grade ___Date 02/19/2012 Questions Q1 wrangle how the southward has influence (if every) over the surface up of Smackey pass over Foods, Inc. Solution The moment (Securities and Exchange Commission) has a great influence on the nominatevas of Smackey heel Foods, Inc. , which is conducted by Keller CPAs. When take stocking a publicly held company, take stockors need to observe principles.The ethical principles of the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct ar independence, responsibilities, the public interest, integrity, objectivity and independence, due cargon, and scope and nature of services. More specifically, visit team members ar require to be objective and independent with estimate to the analyse by maintaining objectivity and being free of conflicts of interest in discharging professional responsibilities and by being independent in fact and show when providing scrutinizeing and former(a) attestation services.Through this one can attain how influential the SEC is. Under the Sarbanes-Oxley Act of 2002, analyseors put up to be objective and independent other than licit sanctions can be incurred. Even though the above mentioned standards ar imposed for audits of public companies, they can similarly be applied to the audit of a non public company like Smackey Dog Foods, Inc. Q2 question the inborn activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food invitee? Solution First the audit team needs to understand the lymph nodes worry and industry.It can be profit suitable for the audit firm to have experience in having audited other foo d manufacturer in preparing and practiceing the audit for Smackey. So far, members of the analyze team, the audit manager Pete and two audit staffers Ben and Maureen, have to understand the guests business and industry. The next step would be to pass judgment the nodes business risk. Business risk is the risk that measures by how overmuch a company (here Smackey) will fail to grasp its objectives. In this activity, the audit team assesses the risk of corporeal mis assertments arising from Smackeys business risk.For example, the high wastage in Smackeys Best Dog division presents a lot of business risk, and thitherfore material mis literary argument risk. Following, the audit team will perform explorative analytic procedures. Keller CPAs needs to comp ar the performance of Smackeys with the industry (these are other competitors) to further support its initial judicial decision of business risk. These analytical procedures help the audit team indentify reachs where the risk s of misstatement are very high. Next, Keller CPAs set corporality and assess acceptable audit risk and inherent risk.The Smackey audit team now has to set the acceptable level of materiality. The share of Smackey have to be taken into account in setting materiality level as this level is purely a relative and base to auditors judgment. Then, the audit team is able to develop an boilersuit audit plan and audit program. The audit plan and program aims to achieve the audit risk objectives of the audit team and to provide reasonable sureness and basis for the audit report and opinion. Q3Discuss the 4 stages of the audit and the study activities performed by the auditor in each phase.Give an example of how each of these specifically applies to the Smackey Dog Food, Inc audit. For instance, examine the apparent cozy understand weaknesses and possible ostracize outcome of each. Solution Stage 1 Planning and Risk assessment During the planning stage the audit team will need to gi ve an understanding of the Smackey Dog Foods business and industry. More specifically, the design and fulfilation of the clients internal check into procedures, processes and systems are studied and analyzed for the audit team to be able to assess the curtail risk for each f the motion-related audit objective occurrence, completeness, accuracy, classification, timing and posting and summarization. After this they can assess the risk. The first risk they may want to look at is the control risk by taking a look at how the internal controls system works at Smackey Dog Foods. Stage 2 Test of internal controls By testing the effectiveness of the internal controls the auditor can determine the control risk that lies within the company.The audit team can perform tests of controls by making inquiries of appropriate client personnel, examining documents, records, and reports keep by Smackey, observing control-related activities such as the one done for the history procedures for retu rned Best Boy Gourmet computer-aided design food, and re-perform the client procedures. Stage 3 Substantive tests of Transactions The Smackey audit team needs to perform indispensable tests on the equalizers of the accounts receivables and entry accounts. Moreover, substantive tests can be done through performing substantive tests of transactions, analytical procedures and test of details of balances.By running tests of transactions, which is alike(p) to test of internal controls the auditor will take an invoice exclusively this magazine verifying the monetary fall of the transaction. Stage 4 inspect Completion At this stage, the audit team compiles a report to Smackeys management as regards matters that came to the teams attention during the audit, evaluates and reviews the audit endorse obtained in the audit, and considers the audit opinion to be is fulfilld based on the point obtained Q4Describe Keller CPAs responsibilities related to communications regarding internal control matters.What internal controls issues do you identify? Solution According to auditing standards and professional conduct the auditor is required that the auditor relay information, in writing, to management and those charged with governance, significant deficiencies and material weaknesses identified in an audit. The following internal control issues were found as regards the audit for Smackey Dog Food, Inc. and thus have to be communicated to appropriate passel within Smackey 1. Granting of commissions to gross revenue people based on estimated sales.This internal control issue presents risks as regards the companys financial resources as sales people might be paid for sales not made, and there is no refund process for commissions paid for this type of sale. 2. Segregation of duties as regards the handling of inventory. With only one person assigned with the preparation and approbative all inventory records, the changes of material misstatements are high. 3. Lack of con trol procedures and guide ancestrys in handling returned dog foods which presented opportunities wherein employees take home returned items.Lack of control procedures and guidelines in handling and recording accounts receivable. This is much more important now since a major(ip) client which represents 31 % of total sales is experience financial difficulty. Moreover, the unavoidableness of these procedures and guidelines is in light of the magnitude of receivables (29 % of total assets). Q5You decide that you will lot Smackey Dog Food, Inc. s accounts receivables through fancy-out procedures. Discuss the various types of ticks and what forms you will implement and why. SolutionWhen auditing there are two types of accounts receivable confirmation, which are compulsive and negative confirmations. Positive Confirmation Is a request by the debtor to confirm whether the balance as tell on the request is coif or incorrect. Two types of positive confirmation are blank confirmation form and invoice confirmation. Blank Confirmation Form Does not state the amount of the confirmation scarce requests to either fill the balance in or furnish more information. Invoice Confirmation This is where instead of an smashing account balance being confirmed a single transaction is confirmed.Negative Confirmation This is when there is a disagreement on the stated balance In relation to Smackey dog foods I would implement an Invoice confirmation based on the info given it seems to be a good place to start positive balances would to be directly linked to the invoices. pickings into mind the amount of returns and how they would directly affect the invoice that was paid but then returned also means that any money that was made on that invoice has also been returned. Q6What are the major factors affecting sample size for confirming accounts receivable? SolutionFactors affecting the sample size for confirming accounts receivable are as follows Tolerable accounts receivable a nd financial statement misstatement Inherent risk, which is dependent on the size of total accounts receivable, the number of accounts, prior-year results, and anticipate misstatements Control risk Achieved detection risk based on other substantive tests and Type of confirmation. Generally a positive confirmation requires a smaller number of sample sizes. Q7A major issue in verifying the ending balance in property, plant and equipment is the possibility of legal encumbrances.Discuss what specific concern do you have. Describe the procedures your firm will perform to obtain evidence closely existing legal encumbrances. Solution here(predicate) are the procedures that Keller CPAs will need to perform to obtain evidence about existing legal encumbrances include 1. Inquiry with property, plant and equipment custodians 2. Review of legal proceeding of meetings 3. Review of items noted during property, plant and equipment inventory observations 4. Confirmation of the clients liabiliti es 5. Reading and reviewing lease agreements 6.Reading and reviewing property, plant and equipment bargain for contracts and agreements The above procedures aim to assess whether encumbrances and liens to the property, plant and equipment have been identified and whether property currently pledged as collateral on a loan has not been sold or damaged. Q8The client wants to know if you will be present at the closing inventory. What is your decision and why? What role or actions will you take at the inventory if you decide to attend the inventory. Why? Solution I deliberate it is very important for the audit team to be at the year-end inventory.The reason for this being is that way the audit team can see how Smackey Dog food performs an inventory check. Secondly, they can take part in the inventory themselves by observation, as well as physical checking and numeration of the inventory. After deciding to attend I would ask for a reproduction of the inventory check list and also ask for the ability to check the inventory along with the rest of the team. By gaining a hands on check this will allow the auditors to see if the controls over inventory are working and that the inventory check lists is correct and states all the inventory that Smackey Dog foods has.Q9Considering the general six functions that cod up the inventory and warehousing troll for Smackey Dog Foods, Inc. , identify the related documents and/or records that would be used. From your analysis of the internal controls related to the inventory and warehousing cycle of Smackey Dog Foods, Inc. , what internal control weaknesses exist? Solution The six general functions that make up the clients inventory and warehousing cycle are 1. Processing of purchase orders purchase requires, quotations from suppliers, and purchase orders 2. Receipt of purchased materials receiving report 3.Storage of materials or inventory materials requisition form 4. Processing raw materials job follow sheet, process cost sheets 5. Storage of finished goods sales invoice, sales order form. 6. Shipping finished goods shipping form and invoices. The internal control weaknesses that exist based on the six functions that make up the warehousing cycle as stated earlier the pretermit of procedure set for handling the large amount of returned dog food. There is also nothing stating that they record the transaction when the dog food is returned so that could also mean they never took the profit move out the books.The other weakness is separation of duties in the warehouse Kim alone has control over inventory, production and shipping. That is too much for one person to conduct especially when her attention has been taken by one specific line of food that the company produces. Smackey needs to bring in people to a great extent to help Kim and reduce her workload. By doing this it will also lower the risk that inventory, production or shipping could become misstated. Q10Discuss if Keller CPAs or its a uditors are breaching any Professional incurs of Conduct and why or why not?Solution Several things occurred that make me believe yes the Keller CPAs are breaching some of the rules of conduct. One issue that sticks out immediately is Pete and Allens relationship. Pete and Allen have actually discussed the audit over a few beers which should not have occurred. This creates a conflict of interest and independence. Another problem that Keller CPAs are set about with is the lack of knowledge of the industry topped with taking on the audit in a crunched time frame to complete it in.By doing this the possibly of the audit team gaining enough knowledge of the industry to perform an audit up to standards in the small time frame is going to be a task in itself. If the audit team had a larger time frame this would be ok but in such a small time frame they wont be able to spend that much time learning the industry and this could lead to not being able to perform an audit following all audit standards. Q11Discuss the CPA firms legal obligation concerns for this audit if they make a material unintentional or intentional mistake. overwhelm any other legal liability concerns regarding possible Professional Rule violations.Solution The CPA firm could face some serious legal consequences if they make an unintentional or intentional mistake. The main liabilities that I see betwixt the audit team and the Smackey Dog Food audit itself is liability to clients, and liability to third parties. liability to clients In this case this would be where if the auditors missed any malingerer occurring and therefore the client can turn around and sue the Keller audit team. In terms of Smackey Dog Food directly, one area of possible fraud is in the inventory department and the returned inventory area.With the lack of separate of duties and the fact that two employees essentially run the whole inventory department it might not even be intentional fraud it maybe just a misstatement and lack of controls over inventory that caused it. precisely the auditor needs to discover this to avoid any legal action. Liability to third parties This occurs if the Keller auditor team fails to find any material misstatements on the financial statements and then the deposit would loans Smackey funds, but shortly after Smackey goes bankrupt. This would heart-to-heart up the auditor to be able to be sued by the bank for not catching the misstatements on the financials.