Smackey Dog Foods Case Study
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Smackey Dog Foods, Inc
Smackey Dog Foods, Ic is a new client to Keller CPAs firm. The nature of business for this company is produce natural dog food which is Keller never have any experience in the audit on this industry before. They started in a family kitchen, experienced explosive growth, and have had some troubles handling the accounting and business side of the business.
The auditor identifies that main purpose of Smackey Dog Food to obtain Audit report is to fulfill bank requirement of additional loan for another $150,000 on top of the company current existing bank loan for $150,000.
Under audit planning, auditor decides whether to accept a new client or continue serving an existing one. This determination is typically made by an experienced auditor who is in a position to make a important decisions. The auditor wants to make this decision early, before incurring any significant cost that cannot be recovered. With Smackey Dog Food, the first thing to address is the SEC’s role or influence over company. Since Smackey is private own there is not a direct oversight or reporting role for the SEC.
There are many audit risks including non-experience on clients industry, which Keller CPAs shouldnt accept the engagement. However, since Keller had time to devote to the audit and therefore accepted the job.
Under engagement staffing required audit specialist, Keller CPAs set an Audit team that have Pete as the audit manager with two audit staffs Ben and Maureen to visit the client, assess the situation, and plan the audit.
According to information were obtained from understanding of company background and during audit field work we identified some issue and company control risk related to the follow areas:
+ Segregation of Duties
+ Lack of Internal Control
– Lack of control on main production for the company.
– Lack of control in accounting records procedure
– Lack of control in handling and recording accounts receivable
+ Issue on abilities of Collection
+ Problem on Sales Projection and Sales commission payout
+ Abilities of debt payment
+ Inventory Management,
+ Waste and stolen issue
+ Potential liability contingency on pending lawsuit
Segregation of Duties
Segregation of duties that auditor notice regards to Henry who is Kims (production operations manager) assistant, is the only person who assigned