Solution Manual For Auditing and Assurance Services 14th Edition by Alvin A. Arens Randal J. Elder Mark S. Beasley

Solution Manual For Auditing and Assurance Services  14th Edition by Alvin A. Arens Randal J. Elder Mark S. Beasley
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TERM PROJECT 1
Analysis and Audit Plan
The objectives of this project are as follows:
1. To acquaint students with the Form 10-K of a publicly held company audited by a CPA firm.
2. To provide data for the practical application of certain steps in the audit process.
3. To allow students to experience working in teams, as is done in actual auditing.
Detailed Instructions
1. Form a group of four persons. Discuss how you will organize (assign responsibilities) to complete this project in a suitable format.
2. Visit the SECs website (www.sec.gov) to obtain a copy of a recent Form 10-K filing by a publicly held company with stock actively traded on the New York, NASDAQ or other over-the-counter exchanges. Answer the following questions:
a. What is the companys industry?
b. What are its primary products?
c. What raw materials does the company use?
d. How large is the company:
sales
assets
employees
e. Where is the company located?
f. What other people/companies are closely associated with this company?
g. Look at the Form 10-K:
What information is included in Item 1 and Item 1A of the Form 10-K? How might that information be useful to the audit during audit
planning?
3. Obtain outside information about the company and its industry. Answer the following questions:
a. What are the key economic factors about the industry?
b. Where is the company in its life cycle?
c. What are the five or six most important factors for success in this
business?
d. How does this company stand with respect to these factors?
e. Describe four or five key business risks related to the clients business
and industry.
xv
f. What notable accounting considerations are there for companies in this industry?
g. What legal or regulatory matters are of concern?
h. What social matters are of concern?
4. Analyze the companys financial strength:
a. Assess the financial strength of the company?
b. How is the financial strength likely to change in the next year or so?
c. What are its sources of capital and what is the value of the companys
capital?
d. How have capital markets responded to the company in the last year?
e. What is the quality of earnings?
f. How does the company compare with others in the industry?
5. Prepare a broad audit plan:
a. What material types of transactions and transaction cycles are involved?
b. What are the high-risk areas?
c. What are the low-risk areas?
d. If management faced tremendous pressure regarding the entitys
financial performance, what opportunities might exist for them to engage
in fraudulent financial reporting?
e. To what extent do you believe it will be appropriate to reduce assessed
control risk?
f. How will audit effort be allocated among geographical areas?
g. What form of auditors report do you expect will be issued; what does it
mean?
6. Indicate as an appendix to the report how the project team was organized and how it functioned on the project.
The project will be graded as follows:
This project accomplishes several purposes. First, it relates the course content to a real (although broadly presented) situation. The students get the idea of auditing the business, not just the books. Students are confronted some for the first time with having to obtain, study, and understand content in a Form 10-K. They have to think about such things as business risk and allocation of scarce resources as a decision maker.
ITEM
CONTENT
STYLE
TOTAL
2-4 5 6
40% 30% 10% 80%
20% 20%
100%
xvi
Having the project done by teams is an important part of the approach. Audits are done by teams and auditors must learn to operate successfully in this mode. The teams report determines the grade for each member of the team, regardless of how the team allocated effort. In grading the report, 20 percent of the grade is based on communication quality. This includes organization, style, grammar, neatness, etc. Since effective communication is so essential in practice, this skill receives emphasis in many ways throughout the course.
Schedule for Completing Term Project:
Week 1 Week 2 Week 3 Week 10
Form group.
Hold organizational meeting. Obtain and the 10-K report. Complete and hand in project.

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