Find a commercial auditable entity (a company, other organization, or part<\/p>\n
of one). You may not use an organization which is not a for-profit entity.<\/p>\n
You may not use a church, synagogue, mosque, nor other religious entity.<\/p>\n
2. Define the auditable entity.<\/p>\n
3. Describe the business model of the entire entity. How does the entity<\/p>\n
receive resources? How does the entity earn a profit? Merely saying that<\/p>\n
it sells something does not tell how it earns a profit; I could set up a<\/p>\n
business selling dollar bills for five cents each, and I might sell a lot of<\/p>\n
dollar bills, but I would not earn a profit from this business.<\/p>\n
For example, if it is a for-profit business, how does it attract customers?<\/p>\n
Are its customers buying staple goods, convenience goods, shopping<\/p>\n
goods, or luxury goods? Explain why these are staple goods,<\/p>\n
convenience goods, shopping goods, or luxury goods. You should have<\/p>\n
learned these terms in your first marketing course. (If you were to audit<\/p>\n
such a not-for-profit organization in the future, after graduation, does it<\/p>\n
receive funds through contributions, member dues, contracts to provide<\/p>\n
social services, etc.?)<\/p>\n
4. If the auditable entity is less than the entire entity, how does the auditable<\/p>\n
entity fit into the entire entity? If the auditable entity is the entire entity,<\/p>\n
say so.<\/p>\n
5. What is the particularized (not general) professional literature which an<\/p>\n
auditor should be aware of, if applicable? Do not include the material in<\/p>\n
the standards and related rules or general audit manual, but do include<\/p>\n
particular FASB statements (SFAS’s), ASB statements, industry audit<\/p>\n
guides available from the AICPA, applicable standards from the GASB,<\/p>\n
regulatory accounting requirements, etc. which apply to this client. Two<\/p>\n
good sources to use to check for such professional literature are the<\/p>\n
AICPA (www.aicpa.org) and a related store (www.cpa2biz.com). Also<\/p>\n
check any professional literature we have at this educational institution,<\/p>\n
including in electronic form.<\/p>\n
6. Track down and read the COSO (Council of Sponsoring Organizations)<\/p>\n
document on risk. (Note to students: The Department of Accounting has<\/p>\n
been successful during the past two to three years in obtaining a site<\/p>\n
license to various authoritative professional literature. If we are able to do<\/p>\n
so again this academic year, check to see whether the COSO literature is <\/p>\n
4<\/p>\n
included.) Tell whether you read the document. Whether or not you<\/p>\n
actually read the document, tell what you did to try to find the document.<\/p>\n
7. What are the most important business risks to the client entity<\/p>\n
associated with this entire entity and with this auditable entity? (Think of<\/p>\n
business risks to the client entity as things which could go wrong, or other<\/p>\n
things which could have a significant negative effect on the client’s<\/p>\n
business.)<\/p>\n
8. What are the most important business risks to the audit firm associated<\/p>\n
with this entire entity and with this auditable entity? (Think of business<\/p>\n
risks to the audit firm as things which could happen that would somehow<\/p>\n
taint the reputation of the audit firm, even though the audit firm did its work<\/p>\n
correctly and rendered the correct report.)<\/p>\n
9. What are the most important audit risks associated with this entire entity<\/p>\n
and with this auditable entity? If you were actually doing a financialstatement<\/p>\n
audit of the entity, what would you do to assure that you could<\/p>\n
gather sufficient appropriate audit evidence to formulate the proper<\/p>\n
opinion on the financial statements of this entity? (Think of audit risks as<\/p>\n
those things peculiar to the client and to the auditable entity which might<\/p>\n
make the auditors think they had done a good job which supports an<\/p>\n
unqualified opinion when in fact the opinion should be qualified,<\/p>\n
disclaimed, or adverse.)<\/p>\n
10. Prepare a report to be presented to the teacher, the class, and possibly to<\/p>\n
some guests. Do not full justify your report; left justify, which leaves a<\/p>\n
ragged right edge. The report should include at least:<\/p>\n
a. Define the auditable entity.<\/p>\n
b. Explain the type of entity (small retail store, stand-alone franchise<\/p>\n
unit of a restaurant chain, hotel owned and operated by a chain,<\/p>\n
manufacturer of pink left-handed widgets, etc.).<\/p>\n
c. If the auditable entity is less than the entire entity, how does it fit<\/p>\n
into the entire entity? What decisions does it make locally, and<\/p>\n
what decisions are made at some upper level?<\/p>\n
d. What is the particularized (not general) professional literature which<\/p>\n
an auditor should be aware of, if applicable? Do not include the<\/p>\n
material in the standards and related rules or general audit manual,<\/p>\n
but do include particular FASB statements (SFAS’s), ASB<\/p>\n
statements, industry audit guides available from the AICPA,<\/p>\n
applicable standards from the GASB, regulatory accounting<\/p>\n
requirements, etc. which apply to this client. Two good sources to<\/p>\n
use to check for such professional literature are the AICPA<\/p>\n
(www.aicpa.org) and a related store (www.cpa2biz.com). Also <\/p>\n
5<\/p>\n
check any professional literature we have at this educational<\/p>\n
institution, including in electronic form.<\/p>\n
e. Tell whether you read the COSO (Council of Sponsoring<\/p>\n
Organizations) document on risk. Whether or not you actually read<\/p>\n
the document, tell what you did to try to find the document.<\/p>\n
f. Are customers of the auditable entity buying staple goods,<\/p>\n
convenience goods, shopping goods, or luxury goods? What<\/p>\n
evidence or persuasive argument do you present in support of this?<\/p>\n
g. What is the business model of the overall entity? (In other words,<\/p>\n
how does the company earn a profit?) Note that saying the<\/p>\n
company sells some products or services tells little or nothing about<\/p>\n
how it earns a profit. Someone can sell genuine U.S. dollar bills for<\/p>\n
five cents each, and sell lots of dollar bills, but he will not make a<\/p>\n
profit.<\/p>\n
h. What are the business risks to the client particular to this entity,<\/p>\n
whether they are due to industry, company size, or other factors?<\/p>\n
(example: The company is in the telecommunications industry,<\/p>\n
which presently is plagued by overcapacity. This puts pressure on<\/p>\n
both the quantity of business it can obtain and on the price it can<\/p>\n
charge to its customers. It may therefore be difficult to perform a<\/p>\n
test concerning whether the company is likely to continue in<\/p>\n
business for one year beyond the date of the financial statements.)<\/p>\n
i. What are the business risks to the auditor associated with<\/p>\n
accepting an engagement to do an audit of this entity? (example:<\/p>\n
The prior auditors state that there were no disagreements over<\/p>\n
accounting principles nor proposed audit adjustments with the<\/p>\n
company’s management, but they increased their fee quotation by<\/p>\n
45% from the preceding fiscal year. This may be an indication that<\/p>\n
there are undisclosed problems related to this company.)<\/p>\n
j. What are the audit risks associated with this entity, whether they be<\/p>\n
due to industry, company size, or other factors? (example: The<\/p>\n
company is very small, so it probably has poor internal controls<\/p>\n
related to segregation of duties.)<\/p>\n
k. Properly cite the sources of information used, and properly quote<\/p>\n
when material is quoted. <\/p>\n","protected":false},"excerpt":{"rendered":"
Find a commercial auditable entity (a company, other organization, or part of one). You may not use an organization which is not a for-profit entity. You may not use a church, synagogue, mosque, nor other religious entity. 2. Define the Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-51079","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/51079","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=51079"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/51079\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=51079"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=51079"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=51079"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}