You Decide Assignment
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 that 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 Securities and Exchange Commission (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 which audits of non-public companies must be conducted. These statements offer guidance on the implementation of Generally Accepted Auditing Standards (GAAS) and do apply to privately held companies. The audit of Smackey Dog Foods, Inc. will be conducted under these standards. The SEC does not require an audit of a privately held company but the bank that Smackey is requesting a loan from would like them to provide audited financial statements before the loan process goes any further. The bank requires that the financial statements comply with Generally Accepted Accounting Principles (GAAP) and Keller CPAs will be auditing the financial statements to verify the bank’s expectations and to provide assurance that the statements are not materially misstated. Pete, Ben, and Maureen will be responsible for conducting the audit of Smackey Dog Foods, Inc. They will plan the audit by developing an audit strategy, identifying problem areas, and specific areas where material misstatements might occur. They will need to analyze the lawsuit to get a feel for the risk associated with it. Pete, Ben, and Maureen will need to include the nature of the industry Smackey Dog Foods, Inc. as in, what a manufacturer does, and how their business operations are run. Before issuing our opinion of the financial statements, we will carefully answer the following questions to ensure that the correct opinion is issued. The Securities and Exchange Commission (SEC) has a significant influence on the audit of Smackey Dog Foods, Inc. by Keller CPAs. This influence can be observed in the audit standards that have to be followed in establishing the independence of auditors involved in the audit of Smackey.
In the audit of publicly held companies including Smackey, auditors need to observe six ethical principles. “Independence is one of the six ethical principles of the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct” (Arens, Elder, & Beasley, 2012, p. 85). The other principles are responsibilities, the public interest, integrity, objectivity and independence, due care, and scope and nature of services. More specifically, audit team members are required to be objective and independent with regard to the audit by maintaining objectivity and being free of conflicts of interest in discharging professional responsibilities and by being independent in fact and appearance when providing auditing and other attestation services. In here the influence of the SEC is very obvious. Under the Sarbanes-Oxley Act (SOX), auditors have to be objective and independent otherwise legal sanctions can be incurred. Although the above standards are enforceable for the audit of public companies, it can also be applied to the audit of non-public companies like Smackey Dog...
References: Arens, A. A., Elder, R. J., & Beasley, M. S. (2012). Auditing and Assurance Services: An Integrated Approach. Boston: Pearson Learning Solutions.
Please join StudyMode to read the full document