Daniel Bayona
1) The SEC does not have influence over this audit. The SEC oversees the responsibility for the
PCAOB. The role of PCAOB is to adopt standards including auditing, attestation, quality control,
ethics and independence during audit services for public companies. Smackey Dog Foods, Inc. (SDF)
is not a public company, however, Keller CPAs is a public accounting firm, and is registered with the
PCAOB, they may be bounded by the principles of the AICPA, if they chose to join. This may enhance
investor confidence, since they would be required to comply with the quality control standards of the
AICPA. The AICPA regulates accounting firms that do not audit public companies. SDF is not bounded
by regulations set by the SEC, such as Sarbones Oaxley Act, nor the regulations which require internal
controls, and disclosures.
2) The essential activities involved in the initial planning of an audit, and how they specifically apply to
Smackey Dog food are:
a) Since Smackey Dog Food is a new client, sufficient understanding of the client and its environment
must first be obtained. Pete, Ben and Maureen are already tasked with assessing the client, therefore
they should gather sufficient background information to assess the risks of material misstatement. They
will work closely with management (Sarah) to discuss SDF’s objectives and strategies, related business
risks, and the manner in which management measures and review’s financial performance (pg. 190).
b) Planning the audit would then continue with determining the requirements for the engagement (pg.
189). Responsibilities of management and audit team are set, financial statements that are required to
be audited are selected. Planning uses a risk-based approach, so far the risks found in this audit will
require a closer look as listed in the next activity for audit planning.
c) Assessing the risks of misstatement and designing further audit procedures. So far the audit team has
discovered a few areas that will require further audit procedures. These includes Jillian’s accounting
methods for her sales team, along with the accounts receivable and lack of write-offs instilled by Sarah.
Henry also poses as an internal risk, and will require a close surveillance during the audit process, his
inventory records will also be surveyed. A business risk also exists
d) Assessing business risk. Business risk is the risk of a company not meeting its goals and objectives.
Keller CPA’s will have to assess this risk, as it applies Smackey’s lack of control over waste. High
