Attachments: ACC 491 Week 3 Team Scenario Assignment (Lockheed Martin).docx [ Preview Here ]
Week 3 Team Assignment Document
You are a senior manager for the highly successful regional CPA firm of Fine, Dee, Evah, Dense, LLP (Fine). Since its inception nearly 30 years ago, Fine’s audit practice has exclusively consisted of auditing private and not-for-profit organizations. Recently, the partners have been considering an opportunity to audit a publically-traded company for the company your team has selected.
The primary reason Fine has not heretofore ventured into auditing publically-traded companies is because of the potential risk and legal liability associated with auditing public companies. However, Fine has been a bit stagnant, business-wise, for the past few years, and some of the older and more risk-adverse partners are beginning to retire. Consequently, the lure of the often-lucrative and prestigious opportunity to audit a public company has become too hard to resist, so the partners have decided to pursue the chance to audit this company.
On a beautiful early-September morning you are called into the senior partner’s office and told you and your team have been selected to lead the first-ever effort to audit a publically-traded company for Fine. You are honored, but also know auditing a public company is a bit more tricky and complicated than auditing private and not-for-profit organizations. Fortunately, the senior partner had considerable experience early in his career with another firm in auditing public companies and told you he would be with you all the way. Relieved, you asked him what he wanted you to do. He tossed you the most recent Form 10-K of the company you selected and gave you the following assignments:
Review and discuss the Form 10-K for the company you have selected.
Create a report that will have 4 sections.
Section 1, Initial Risk Assessment.
Hint: The business and risk information is usually found in the first part of the Form 10-K. However, for the risks, do not simply restate what is in the Form 10-K. Think like a senior manager at a CPA firm – what accounts (Cash, A/R, Revenue, Inventory, etc.) might be the most potentially risky and why? For example, an airline might not have the same inventory considerations found with a retail outlet like Wal-Mart.
In 700-to 1,050-words:
Describe the business briefly.
Assess any risks you may encounter in auditing this company.
General Audit Concerns
The requisite background you and your team will need to adequately audit this company.
Time it will take to adequately audit this client.
General Business Concerns
Has the company you’re auditing recently increased or decreased their operations due to mergers or sales of parts of the business?
Are they a conglomerate with lots of disparate kinds of goods and services, or are they a simple straight-forward type of business operating in a relatively small location?
Are operating supplies (such as jet fuel or specialty plastics) in short supply or subject to wild pricing swings on the open market?
What about overseas operations – are they operating in dangerous parts of the world?
How robust or intense is the competition in this particular industry?
Has their top management recently been replaced and if so, why?
Is seasonality a factor for this company? How does that affect revenue and other operations?
Describe the following issues:
Ethics and Legal Issues
The ethics and sophistication of top management and cultures where the company operates.
Have there been significant auditing or accounting issues raised in the recent past?
Did they have disputes with their previous audit firm?
Is this company or industry particularly susceptible to lawsuits or other legal proceedings?
Evaluate the regulatory and compliance requirements of this company:
Regulatory and Compliance Concerns
The compliance requirements of this company.
Is it subject to a high-level of governmental regulation?
Are employees unionized? Are they generally compliant with Sarbanes-Oxley and other regulatory rules?
Section 2, Analytical Procedures
Based on TABLE 8-1, p. 220 Examples of Planning Analytical Procedures and the sections on Analytical Procedures in the text, select three ratios (e.g. Current Ratio, Inventory Turnover, Debt to Equity, Return on Assets, etc.), calculate these ratios for your company and a competitor for the most recent year, and compare the results.
Write a 350-to 525-word analysis of your findings. Note that these ratios are found in the Common Financial Ratios section of Chapter 8.
Section 3, Materiality and Risk
The senior partner wants to confirm your understanding of key concepts.
Summarize each concept 90-175-words each.
Audit Risk Model
Relationship of Risk to Audit Evidence
Section 4, Audit Tests
The reading in Chapter 13 (p. 402-407) describes five types of audit tests of financial statements:
Risk Assessment Procedures
Test of Controls
Substantive Tests of Transactions
Tests of Details of Balances.
In 350- to 700-words:
Identify which tests are best suited for the company you selected and why.
Explain why some tests are not suitable.
Learning Team assignments build upon each other from Weeks 3-5. The first step in this process is to go to the website of a publically-traded US company and select the most recent 10-K Form (legally-required document publicly-traded companies must submit to the Securities and Exchange Commission - SEC - on an annual basis. Among other things, this document contains the opinion of the CPA firm regarding the company's financial statements and adherence to Generally Accepted Accounting Principles - GAAP). The contents of this form will be the basis of the team assignments