Lambuth University

School of Business & Economics

Spring Semester, 2008

 

ACC 4163

Principles & Theory of Auditing II

Thursday 6:00 – 8:45 pm

Varnell-Jones Hall – Room #300

COURSE SYLLABUS

 

Instructor:       Dan Ashton                  Office Hours:  Mon     08:00-09:30, 12:30-1:00

Office:             Varnell-Jones #304                              Tues     11:00 – 2:30 pm                                                                                                               Wed    08:00-09:30, 12:30-1:00

                                                                                     Thru    12:00 – 3:00 pm          

                                                                                     Fri         8:00 – 9:00 am

Phone:              425-3219

E-mail: Ashton@lambuth.edu                                     

 

 

Required Materials: 

 

            Texts:  Arens, Elder & Beasley, Auditing: an Integrated Approach, 12th edition (Prentice-Hall, Inc., Englewood Cliffs, N.J. 2003).

 

                        Knapp, Michael C., Contemporary Auditing Issues and Cases, 6th edition (West Publishing Company, Minneapolis, Minn., 2001).

                       

Purpose of the Course:

            The purpose of the course is to provide a comprehensive introduction to auditing theory, standards and the application of procedures used by independent Certified Public Accountants to render an opinion on the financial statements of the entity being examined.  The course will cover the ethical environment of the independent auditor, the nature of the auditing standards and procedures underlying the audit opinion.  And the various forms of the resulting audit report.  This course will also emphasize the integration of generally accepted accounting principles and the application of statistical sampling methods as they pertain to the auditing process.

 

Course Objectives:

 

  The following are broad objectives for this course. 

              1. Integrate and apply knowledge acquired in prior accounting courses to the practice of auditing.

              2.  Explain the role of the independent auditor in our economy.

              3.  Interpret and explain the auditing process both in terms of (a) the relationship between specific audit objectives, audit procedures and the evaluation of audit evidence, and (b) the underlying rationale for those relationships.

              4.  Interpret and explain the message contained in the independent auditor’s report in terms of the responsibilities assumed and those not assumed by the auditor.

              5.  Demonstrate competence for all professional examinations taken is subsequent to graduation.

 

Prerequisites:

              Accounting3113 and 3123 (Intermediate Accounting I and II) and Accounting 4153 (Auditing 1) of their equivalents are required.  Other recommended courses include CIS 1503 (Survey of Business Software) and ECON 2033 (Principles of Macroeconomics) both of which should prove helpful in the comprehension and preparation for the class requirements.

            Should you doubt your background in meeting these requirements, please see me privately as early as possible in the term, so that we may assess your individual situation.

 

 

Classroom Expectations

Preparation:

              Classes will be conducted on a lecture-discussion and problem-solving basis.  Brief lectures will introduce the topic and review aspects of the assigned material.  However, much of the class time will center on class discussion and solving written assignments.  A key element to understanding the material will be how conscientiously the student studies the reading assignments and prepares the written assignments before class.

              Lectures and class discussions will be based upon the assumption that all assigned work and reading have been completed prior to class.  When a Reading is assigned, it is essential that advance preparation includes not only reading, but identification of key facts and major questions posed by the assignment and the written requirement noted.

 

Attendance:

Regular attendance is necessary for satisfactory performance in this course.  While it is understandable that absence is occasionally unavoidable, each student is entirely responsible for making up any missed assignments or lecture notes. Excused absences will include 1. Statement from doctor 2.  Statement from school nurse 3.  Official school events 4.  Family emergency.  No absence will be excused until a memo is provided explaining why it should be excused.  More than one unexcused absences will result in your final grade being reduced by one letter grade for each unexcused.  It is very important to prepare for and participate in class discussion.  This interaction is critical to full development and understanding of many of the topics considered in this course.

 

Case Studies:

              Five short, case-based assignments will be made throughout the semester. These will require an analysis of financial accounting issues inherent in auditing and actual business situations.  Each case will require a write-up of the issues and the conclusions you draw from the assignment.  Further details will be provided in class.

 

Quizzes:

Quizzes will be given for each chapter at the beginning of class.  Quizzes may not be made up for any reason.  

 

 

Exams:

              There will be two exams during the term when the appropriate point in material content is reached.  The third exam will be given at the time appointed by the final examine schedule for the School of Business.  The exams will cover assigned text material and will be detailed well in advance of the test dates.  To assure academic integrity and fairness to all, make-up exam will not be given.  Should you miss an exam; the third exam will be re-weighted to count for the previously missed exam.

 

Term Project/Presentation:  See Attached.   

 

 

Grading:

              Grades will be based upon individual relative performance to that of the class.  Components of this evaluation will be based upon the following:

 

                                                Exams (3)                                             60%

                                                Case Studies                                        10%

                                                Quizzes                                                10%    

                                                Term Project/Presentation                     20%

                                                            Total                                        100%

 

Grading Scale:

A = 90 – 100%

B = 80 – 89%

C = 70 – 79%

D = 60 – 69%

F = below 60%

 

**10-point scale

                       

Standards of Conduct and Academic Integrity:

    This course will be conducted according to the standards specified in the “Statement of Community Conduct” and “Guidelines and Procedures for Academic Discipline.”

 Statement of Integrity:

“Coercion of faculty to change grades is strictly prohibited; grade change requests must follow University established guidelines; refer to the Lambuth Handbook for details; any grade change must be supported by adequate and substantial documentation.  Lambuth University will not lessen its academic standards for any reason.”

 

Written Case Assignments:

             Cases are assigned from the casebook by Michael Knapp, Contemporary Auditing Issues and Cases, 6th edition (West Publishing Company, Minneapolis, Minn., 2004).   The purpose of these assignments is to expose students to situations in which auditors failed, for various reasons, to satisfy their professional responsibilities.  All assignments deal with cases which are derived from actual event or situations.   While the text by Arens, Elder & Beasley is the best text that I have found in providing auditing theory, standards and the application of procedures, you will learn much more by applying this material in real audit settings.  Keep in mind as you read these cases that the purpose of these assignments is not to criticize individuals audit firms or their clients, but rather to provide students the opportunity to learn from these ‘real-world’ situations.  By semester’s end some relevant insight and knowledge should be gained by this investigation and approach in application.

              Case assignment will be collected for evaluation at the beginning of class on the date due.  Late work will not be accepted.  The cases will be evaluated and returned.   All case questions are to be answered clearly and in a well-organized manner.  All assignment must be type (double-spaced), and limited to no more than four pages, unless instructed otherwise.              Several questions in the cases involve accounting theory/practice that should be covered in most Intermediate Accounting textbooks.   Other questions may involve auditing issues not directly discussed in class.  In either case, you are expected to research the case questions to arrive at sound, logical, well-reasoned answers.  This allows the student an opportunity to apply accounting and other business knowledge they have acquired to real auditing dilemma.

 

Learning Accommodations:

Learning accommodations will be made for students who have documentation on file with the Director of Student Disability Services.  For those students, the following accommodations maybe made if warranted:

1.      Extra time to for test taking;

2.      Allow the use of a tape recorder to record class discussions;

3.      Allow students to have someone else take notes on their behalf.

No other accommodations will be guaranteed, but other accommodations will be considered.  The instructor will make the final decision on other accommodations.  The instructor will work with the Office of Student Success and Retention to help any student find a tutor. 

 

 

 

 

 

 

 

 

 

 

 

Term Project/Presentation:

 

Analysis and Audit Plan

 

There are two objectives in this term project.

            1.  To acquaint students with the annual report and Form 10-K of a publicly held company audited by a CPA firm.  The term project provides the opportunity to relate the course content to a real (although broadly presented) situation.  The project emphasizes the importance of ‘auditing the business, not just the books’.

            2.  To provide data for the practical application of certain steps in the basic audit process.

 

Detailed Instructions:

 

1.    Obtain a copy of a recent annual report (no older than fiscal year ending 12/31/06) of a publicly held company with stock actively traded on the New York, American, or NASDAQ exchanges.  Answer the following questions:

 

            a. What is the company’s industry sector?

            b. What are its primary products/services?

            c. What raw materials and resources does the company use?

            d. How large is the company?

                        - Sales

                        - Assets

                        - Employees

                        - Other relevant measures

            e. Where is the company located?

            f.   What other person(s)/companies are closely associated/affiliated with this company?

            g. Has the company recently been restructured, downsized, etc.?  What were the reasons given for the reorganization?  What impact did the reorganization have on earnings and net income? 

            h. Look at the annual report:

                        - What image does it intend to convey?

                        - What are the segments and functional contents of the report?

 

2.  Obtain a copy of the Company’s 10-K report for the same date as the annual report.

            Answer the following questions:

 

            a. How does this 10-K differ from the annual report?

            b. Supplement the answers to the questions under #1 above as appropriate.

 

3.  Obtain outside information about the company and its industry.  Cite your sources and answer the following questions:

 

            a. What are the key economic factors about the industry?

            b. What are the five or six most important factors for success in this business sector?

            c. How does this company stand in respect to these factors?

            d. What notable accounting considerations are there for companies in the industry?

            e. What particular legal or regulatory matters are of concern?

            f. What are the social matters of concern?

            g. Where is the company in its life cycle?

 

4.  Analyze the company’s financial health:

 

            a. Is this a healthy company?

            b. What are the primary sources of capital and how has the company used the capital?

            c. How has the capital market responded to the company?

            d. What is the quality of earnings?

                        - Contingent liabilities, including the impact of potential cost of being named as a “potential responsible part” under the superfund statutes.

                        - Impact of SFAS #106, including how the company accounts for the “Postretirement Benefits Other than Pensions”

                        - Impact of SFAS #109, including how the company intends to account for the change in Deferred Income Taxes

                        - Impact of SFAS #121, “Accounting for the Impairment of Long-Lived Assets…”

                        - Impact of any other material potential items on future earnings

            e. How does the company compare with the rest of the firms in the industry?

 

5.  Prepare a broad audit plan:

 

            a. What material types of transactions and transaction cycles are involved?

            b. What appears to be the high-risk areas?

            c. What appears to be the low-risk areas?

            d. To what extent do you believe it will be appropriate to reduce assessed control risk?  Explain.

            e. How will audit effort be allocated among geographic areas?

            f. What form of auditor’s report do you expect will be issued?  What does it mean?

 

Note that a significant portion of the grade is based upon writing style, which includes organization, grammar, clarity, creativity, etc. you are expected to create a report that goes beyond simply answering each question, step by step, rather, an interesting, thoughtful, and well-prepared report containing the above information is expected.  The report must be typed (double-spaced), contain appropriate references and be limited to no more than 15 pages.

 

Please note that the due date is _______.  Reports will not be accepted beyond this date – no extensions will be granted.  Please work well in advance of this date to improve the overall quality of the paper and to avoid problems due to last minute time constraints.