Term project 1

1. Find a commercial auditable entity (a company other organization or part
of one). If you cannot find a live one find a dead one at the United
States Bankruptcy Court. In Brooklyn NY the Bankruptcy Court is
located at 271-C Cadman Plaza East Suite 1595 Brooklyn NY 11201-
1800. 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 auditable entity.
3. Describe the business model of the entire entity. How does the entity
receive resources? How does the entity earn a profit? Merely saying that
it sells something does not tell how it earns a profit; I could set up a
business selling dollar bills for five cents each and I might sell a lot of
dollar bills but I would not earn a profit from this business.
For example if it is a for-profit business how does it attract customers?
Are its customers buying staple goods convenience goods shopping
goods or luxury goods? Explain why these are staple goods
convenience goods shopping goods or luxury goods. You should have
learned these terms in your first marketing course. (If you were to audit
such a not-for-profit organization in the future after graduation does it
receive funds through contributions member dues contracts to provide
social services etc.?)
4. If the auditable entity is less than the entire entity how does the auditable
entity fit into the entire entity? If the auditable entity is the entire entity
say so.
5. What is the particularized (not general) professional literature which an
auditor should be aware of if applicable? Do not include the material in
the standards and related rules or general audit manual but do include
particular FASB statements (SFAS’s) ASB statements industry audit
guides available from the AICPA applicable standards from the GASB
regulatory accounting requirements etc. which apply to this client. Two
good sources to use to check for such professional literature are the
AICPA (www.aicpa.org) and a related store (www.cpa2biz.com). Also
check any professional literature we have at this educational institution
including in electronic form.
6. Track down and read the COSO (Council of Sponsoring Organizations)
document on risk. (Note to students: The Department of Accounting has
been successful during the past two to three years in obtaining a site
license to various authoritative professional literature. If we are able to do
so again this academic year check to see whether the COSO literature is
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included.) Tell whether you read the document. Whether or not you
actually read the document tell what you did to try to find the document.
7. What are the most important business risks to the client entity
associated with this entire entity and with this auditable entity? (Think of
business risks to the client entity as things which could go wrong or other
things which could have a significant negative effect on the client’s
business.)
8. What are the most important business risks to the audit firm associated
with this entire entity and with this auditable entity? (Think of business
risks to the audit firm as things which could happen that would somehow
taint the reputation of the audit firm even though the audit firm did its work
correctly and rendered the correct report.)
9. What are the most important audit risks associated with this entire entity
and with this auditable entity? If you were actually doing a financialstatement
audit of the entity what would you do to assure that you could
gather sufficient appropriate audit evidence to formulate the proper
opinion on the financial statements of this entity? (Think of audit risks as
those things peculiar to the client and to the auditable entity which might
make the auditors think they had done a good job which supports an
unqualified opinion when in fact the opinion should be qualified
disclaimed or adverse.)
10. Prepare a report to be presented to the teacher the class and possibly to
some guests. Do not full justify your report; left justify which leaves a
ragged right edge. The report should include at least:
a. Define the auditable entity.
b. Explain the type of entity (small retail store stand-alone franchise
unit of a restaurant chain hotel owned and operated by a chain
manufacturer of pink left-handed widgets etc.).
c. If the auditable entity is less than the entire entity how does it fit
into the entire entity? What decisions does it make locally and
what decisions are made at some upper level?
d. What is the particularized (not general) professional literature which
an auditor should be aware of if applicable? Do not include the
material in the standards and related rules or general audit manual
but do include particular FASB statements (SFAS’s) ASB
statements industry audit guides available from the AICPA
applicable standards from the GASB regulatory accounting
requirements etc. which apply to this client. Two good sources to
use to check for such professional literature are the AICPA
(www.aicpa.org) and a related store (www.cpa2biz.com). Also
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check any professional literature we have at this educational
institution including in electronic form.
e. Tell whether you read the COSO (Council of Sponsoring
Organizations) document on risk. Whether or not you actually read
the document tell what you did to try to find the document.
f. Are customers of the auditable entity buying staple goods
convenience goods shopping goods or luxury goods? What
evidence or persuasive argument do you present in support of this?
g. What is the business model of the overall entity? (In other words
how does the company earn a profit?) Note that saying the
company sells some products or services tells little or nothing about
how it earns a profit. Someone can sell genuine U.S. dollar bills for
five cents each and sell lots of dollar bills but he will not make a
profit.
h. What are the business risks to the client particular to this entity
whether they are due to industry company size or other factors?
(example: The company is in the telecommunications industry
which presently is plagued by overcapacity. This puts pressure on
both the quantity of business it can obtain and on the price it can
charge to its customers. It may therefore be difficult to perform a
test concerning whether the company is likely to continue in
business for one year beyond the date of the financial statements.)
i. What are the business risks to the auditor associated with
accepting an engagement to do an audit of this entity? (example:
The prior auditors state that there were no disagreements over
accounting principles nor proposed audit adjustments with the
company’s management but they increased their fee quotation by
45% from the preceding fiscal year. This may be an indication that
there are undisclosed problems related to this company.)
j. What are the audit risks associated with this entity whether they be
due to industry company size or other factors? (example: The
company is very small so it probably has poor internal controls
related to segregation of duties.)
k. Properly cite the sources of information used and properly quote
when material is quoted.