Term project

1. Find a commercial auditable entity (a company, other organization, or partof one). If you cannot find a “live” one, find a “dead” one at the UnitedStates Bankruptcy Court. In Brooklyn, NY, the Bankruptcy Court islocated 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 entityreceive resources? How does the entity earn a profit? Merely saying thatit sells something does not tell how it earns a profit; I could set up abusiness selling dollar bills for five cents each, and I might sell a lot ofdollar 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, shoppinggoods, or luxury goods? Explain why these are staple goods,convenience goods, shopping goods, or luxury goods. You should havelearned these terms in your first marketing course. (If you were to auditsuch a not-for-profit organization in the future, after graduation, does itreceive funds through contributions, member dues, contracts to providesocial services, etc.?)4. If the auditable entity is less than the entire entity, how does the auditableentity 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 anauditor should be aware of, if applicable? Do not include the material inthe standards and related rules or general audit manual, but do includeparticular FASB statements (SFAS’s), ASB statements, industry auditguides available from the AICPA, applicable standards from the GASB,regulatory accounting requirements, etc. which apply to this client. Twogood sources to use to check for such professional literature are theAICPA (www.aicpa.org) and a related store (www.cpa2biz.com). Alsocheck 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 hasbeen successful during the past two to three years in obtaining a sitelicense to various authoritative professional literature. If we are able to doso again this academic year, check to see whether the COSO literature is4included.) Tell whether you read the document. Whether or not youactually read the document, tell what you did to try to find the document.7. What are the most important business risks to the client entityassociated with this entire entity and with this auditable entity? (Think ofbusiness risks to the client entity as things which could go wrong, or otherthings which could have a significant negative effect on the client’sbusiness.)8. What are the most important business risks to the audit firm associatedwith this entire entity and with this auditable entity? (Think of businessrisks to the audit firm as things which could happen that would somehowtaint the reputation of the audit firm, even though the audit firm did its workcorrectly and rendered the correct report.)9. What are the most important audit risks associated with this entire entityand with this auditable entity? If you were actually doing a financialstatementaudit of the entity, what would you do to assure that you couldgather sufficient appropriate audit evidence to formulate the properopinion on the financial statements of this entity? (Think of audit risks asthose things peculiar to the client and to the auditable entity which mightmake the auditors think they had done a good job which supports anunqualified 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 tosome guests. Do not full justify your report; left justify, which leaves aragged right edge. The report should include at least:a. Define the auditable entity.b. Explain the type of entity (small retail store, stand-alone franchiseunit 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 fitinto the entire entity? What decisions does it make locally, andwhat decisions are made at some upper level?d. What is the particularized (not general) professional literature whichan auditor should be aware of, if applicable? Do not include thematerial in the standards and related rules or general audit manual,but do include particular FASB statements (SFAS’s), ASBstatements, industry audit guides available from the AICPA,applicable standards from the GASB, regulatory accountingrequirements, etc. which apply to this client. Two good sources touse to check for such professional literature are the AICPA(www.aicpa.org) and a related store (www.cpa2biz.com). Also5check any professional literature we have at this educationalinstitution, including in electronic form.e. Tell whether you read the COSO (Council of SponsoringOrganizations) document on risk. Whether or not you actually readthe 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? Whatevidence 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 thecompany sells some products or services tells little or nothing abouthow it earns a profit. Someone can sell genuine U.S. dollar bills forfive cents each, and sell lots of dollar bills, but he will not make aprofit.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 onboth the quantity of business it can obtain and on the price it cancharge to its customers. It may therefore be difficult to perform atest concerning whether the company is likely to continue inbusiness for one year beyond the date of the financial statements.)i. What are the business risks to the auditor associated withaccepting an engagement to do an audit of this entity? (example:The prior auditors state that there were no disagreements overaccounting principles nor proposed audit adjustments with thecompany’s management, but they increased their fee quotation by45% from the preceding fiscal year. This may be an indication thatthere are undisclosed problems related to this company.)j. What are the audit risks associated with this entity, whether they bedue to industry, company size, or other factors? (example: Thecompany is very small, so it probably has poor internal controlsrelated to segregation of duties.)k. Properly cite the sources of information used, and properly quotewhen material is quoted.