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Auditing Cases: An Interactive Learning Approach is intended for use in undergraduate and graduate Auditing, Professional Research Case, or capstone courses.
Step through real auditing cases one by one in this comprehensive text
Auditing Cases is a comprehensive case book that focuses on each of the major activities performed during an audit. Most of the auditing cases are based on actual companies, and a number address financial reporting fraud. The unique active learning approach helps students learn to think critically and develop their interpersonal skills, which are increasingly important in the workplace.
Teaching and Learning Experience
To provide a better teaching and learning experience–for both instructors and students–this program will:
- Engage Students with an Active Learning Approach: The auditing cases capture students’ interest using lively narrative that introduces emerging accounting-related issues.
- Easily Integrate Cases into your Course: The Instructor’s Resource Manual offers instructional approaches, activity ideas, and group assignments to merge the cases into an existing course.
- Help Students See Concepts in Action: Cases are introduced according to the phase of auditing they demonstrate, presenting students with clear examples of the material.
Table of Contents:
Introduction: Professional Judgment
Section 1: Client Acceptance
1.1 Ocean Manufacturing, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
The New Client Acceptance Decision
Section 2: Understanding the Client’s Business and Assessing Risk
2.1 Your1040Return.com . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Evaluating eBusiness Revenue Recognition, Information Privacy, and Electronic Evidence Issues
2.2 Apple Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Evaluation of Client Business Risk
2.3 Flash Technologies, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Risk Analysis
2.4 Asher Farms Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Understanding of Client’s Business Environment
Section 3: Professional and Ethical Issues
3.1 A Day in the Life of Brent Dorsey . . . . . . . . . . . . . . . . . . . . . . . 57
Staff Auditor Professional Pressures
3.2 Nathan Johnson’s Rental Car Reimbursement . . . . . . . . . . . . . . . . 61
Should He Pocket the Cash?
3.3 The Anonymous Caller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Recognizing It’s a Fraud and Evaluating What to Do
3.4 WorldCom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
The Story of a Whistleblower
3.5 Hollinger International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Realities of Audit-Related Litigation
Section 4: Accounting Fraud and Auditor Legal Liability
4.1 Enron Corporation and Andersen, LLP . . . . . . . . . . . . . . . . . . . 87
Analyzing the Fall of Two Giants
4.2 Comptronix Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Identifying Inherent Risk and Control Risk Factors
4.3 Cendant Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Assessing the Control Environment and Evaluating Risk of Financial Statement Fraud
4.4 Waste Management, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Manipulating Accounting Estimates
4.5 Xerox Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Evaluating Risk of Financial Statement Fraud
4.6 Phar-Mor, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Accounting Fraud, Litigation, and Auditor Liability
4.7 Satyam Computer Services Limited . . . . . . . . . . . . . . . . . . . . . 143
Controlling the Confirmation Process
Section 5: Internal Control over Financial Reporting
5.1 Simply Steam, Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
Evaluation of Internal Control Environment
5.2 Easy Clean, Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Evaluation of Internal Control Environment
5.3 Red Bluff Inn & Café . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Establishing Effective Internal Control in a Small Business
5.4 St. James Clothiers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
Evaluation of Manual and IT-Based Sales Accounting System Risks
5.5 Collins Harp Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
Recommending IT Systems Development Controls
5.6 Sarbox Scooter, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181
Scoping and Evaluation Judgments in the Audit of Internal Control over Financial Reporting
5.7 Société Générale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
How a Low-Risk Trading Area Caused a $7.2 Billion Loss
Section 6: The Impact of Information Technology
6.1 Harley-Davidson, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
Identifying eBusiness Risks and Related Assurance Services for the eBusiness Marketplace
6.2 Jacksonville Jaguars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
Evaluating IT Benefits and Risks and Identifying Trust Services Opportunities
Section 7: Planning Materiality
7.1 Anne Aylor, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
Determination of Planning Materiality and Tolerable Misstatement
Section 8: Analytical Procedures
8.1 Laramie Wire Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . 233
Using Analytical Procedures in Audit Planning
8.2 Northwest Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
Developing Expectations for Analytical Procedures
8.3 Burlingham Bees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Using Analytical Procedures as Substantive Tests
Section 9: Auditing Cash, Fair Value, and Revenues
9.1 Wally’s Billboard & Sign Supply . . . . . . . . . . . . . . . . . . . . . . . 249
The Audit of Cash
9.2 Henrico Retail, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
Understanding the IT Accounting System and Identifying Audit Evidence for Retail Sales
9.3 Longeta Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
Auditing Revenue Contracts
9.4 Bud's Big Blue Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . 273
Accounts Receivable Confirmations
9.5 Morris Mining Corporation . . . . . . . . . . . . . . . . . . . . . . . . . 285
Auditing Fair Value
9.6 Hooplah, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
Applying Audit Sampling Concepts to Tests of Controls and Substantive Testing in the Revenue Cycle
9.7 RedPack Beer Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 301
Estimating the Allowance for Bad Debts
Section 10: Planning and Performing Audit Procedures in the Revenue and Expenditure Cycles: An Audit SImulation
10.1 Southeast Shoe Distributor, Inc. . . . . . . . . . . . . . . . . . . . . . . 311
Identification of Tests of Controls for the Revenue Cycle (Sales and Cash Receipts)
10.2 Southeast Shoe Distributor, Inc. . . . . . . . . . . . . . . . . . . . . . . 329
Identification of Substantive Tests for the Revenue Cycle (Sales and Cash Receipts)
10.3 Southeast Shoe Distributor, Inc. . . . . . . . . . . . . . . . . . . . . . . 339
Selection of Audit Tests and Risk Assessment for the Revenue Cycle (Sales and Cash Receipts)
10.4 Southeast Shoe Distributor, Inc. . . . . . . . . . . . . . . . . . . . . . . 347
Performance of Tests of Transactions for the Expenditure Cycle (Acquisitions and Cash Disbursements)
10.5 Southeast Shoe Distributor, Inc. . . . . . . . . . . . . . . . . . . . . . . 367
Performance of Tests of Balances for the Expenditure Cycle (Acquisitions and Cash Disbursements)
Section 11: Developing and Evaluating Audit Documentation
11.1 The Runners Shop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379
Litigation Support Review of Audit Documentation for Notes Payable
Section 12: Completing the Audit, Reporting to Management, and External Reporting
12.1 EyeMax Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395
Evaluation of Audit Differences
12.2 Auto Parts, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401
Considering Materiality When Evaluating Accounting Policies and Footnote Disclosures
12.3 K&K Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403
Leveraging Audit Findings to Provide Value-Added Insights in a Manufacturing Environment
12.4 Surfer Dude Duds, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409
Considering the Going-Concern Assumption
12.5 Murchison Technologies, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 413
Evaluating an Attorney’s Response and Identifying the Proper Audit Report
12.6 Going Green . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421
Sustainability and External Reporting
