Smackey Dog Foods, Inc. has approached Keller CPAs to conduct an audit of the financial statements. The purpose of this summary is to describe the expectations Keller CPAs has regarding how the audit of Smackey Dog Foods, Inc. will be conducted. Smackey Dog Foods, Inc. is a privately held corporation and is not required to follow the rules set forth by the SEC for audit of public companies. Keller CPAs must follow the guidelines set forth by the American Institute of Certified Public Accountants (AICPA) no matter if the client being audited is privately or publicly held. The Auditing Standards Board of the AICPA issues statements on Auditing Standards. The pronouncements are the standards by ...view middle of the document...
Before issuing our opinion of the financial statements, we will carefully answer the following questions to ensure the correct opinion is issued.
Q1: Discuss how the SEC has influence (if any) over the audit of Smackey Dog Foods, Inc.
The Securities and Exchange Commission has significant influence over Smackey Dog Foods Inc. by providing auditing standards to auditors so that they establish auditor independence when having to audit Smackey Dog Foods, Inc. Independence is one of the six ethical established by American Institute of Certified Public Accountants (AICPA). The other principles include the public interest, integrity, objectivity and independence, due care, and scope and nature of services. The audit team members are required to be objective and independence with regard to the audit by maintain objectivity and being free of conflicts of interests in discharging professional responsibilities and by being independent in fact and appearance when providing auditing and other attestation services. Under the Sarbanes-Oxley Act, auditors a have to be objective and independent or legal sanctions will be incurred.
These standards are enforceable for audit of public companies but can also be applied to the audit on non public companies like Smackey Dog Foods, Inc.
Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client?
Below are essential activities involved in the initial planning of an audit as they relate to Snackey Dog Food Inc.
• Understand the client’s business and industry. We have an understanding of Smackey’s because of the experience of auditing other food manufactures in planning and doing the audit. Pete, Ben, and Maureen will have to understand the nature of Smackey’s business and industry.
• Perform preliminary analytical procedures. The CPA team will need to compare the performance of Smackey’s with others in the same industry before its initial assessment of business risks. By identifying the risks of the industry, it will help the audit team identify any areas where the risks of misstatements can be extremely high.
• Set materiality and assess acceptable audit risk and inherent risk.
• Develop overall audit plan and audit program. The overall plan and program aims to achieve the audit risk objectives of the audit team and to provide reasonable assurance and basis for the audit report and opinion.
Q3: Discuss the 4 stages of the audit and the major 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 internal control weaknesses and possible negative outcome of each.
• Planning and risk assessment. For Smackey, obtaining understanding of Smackey’s business and its industry can initially assess the risks....