Smackey Dog Food

Smackey Dog Food

Q1: Discuss how the SEC has influence (if any) over the audit of Smackey Dog Foods, Inc. (Smackey)

Solution 1:

The SEC does not have direct influence on privately held companies such as Smackey. It does, however, have considerable indirect influence in setting generally accepted accounting principles and disclosures requirements considered necessary for fair disclosures of investors in the United States. Specific to the case study, Keller CPA (Keller) must follow the six generally accepted audit standards established by the Auditing Standards Board (ASB) of the Accounting Institute of Certified Public Accountants which include general standards, standards of field work and standards of reporting.

Reference: Page 30-32

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 2:

Keller’s purpose for audit planning is to gain an understanding of the client’s business and industry, which is used to assess acceptable audit risk, client business risk and the risk of material misstatements of financial statements. The four major parts of audit planning include: (1) setting materiality and assess acceptable audit risk and inherent risk; understanding internal control and assesses control risk; gathering information to assess fraud risk; and developing an overall audit plan and audit program. The sub-parts of accepting a client and initial planning of an audit should focus on the following:

• New client acceptance and continuance. Keller will need to assess Smackey as a new client against other engagements prior to incurring significant costs. The Senior Partner(s) will most likely compare any risks factors and costs/benefits of taking on Smackey based upon precursory information and rely upon their professional experience.

• Identify client reasons for audit. Keller knows that Smackey seeks an audit for additional debt financing, but other reasons such as improved controls efficiency may be part of the unstated motivation.

• Obtain an understanding with the client. The Keller senior partner will need to finalize terms of engagement to avoid misunderstanding of scope of services. Keller needs to lock in an engagement letter with clearly defined objectives with Smackey so that it can perform the audit service in timely and least cost manner.

• Develop engagement staffing and any identify required audit specialists. Keller will need to staff this audit to research and develop a throughout understanding of the dog food industry as well as food processing, warehousing and inventory controls auditors