Robatelli’s Continuing Case Solution – Chapter 7
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Imagine that you have been hired to perform the financial statement audit for
Robatelli’s Pizzeria. This is the first time the company has had an external audit.
a. What steps would your firm go through in the planning phase for this initial
audit engagement?
The steps in the audit planning process include:
1. The auditor must gain a thorough understanding of Robatelli’s major
business processes and the related financial reporting systems. This
2. The auditor must gather evidence about internal controls within the
major business processes, including controls within computer
resources and the related functions. Key members of the accounting
3. Based on the evidence gathered in step 2 above, the auditor must
make a determination about whether or not the internal controls are
4. Auditors must assess risks and establish materiality limits to be used
on the audit engagement in determining the nature and extent of tests
to be applied. In determining materiality, a threshold is set for
establishing the amounts that are considered significant enough to
5. After performing step 4, an audit approach can be developed. The
nature, timing, and extent of audit tests must be documented in an
audit program. If the auditor has determined that the company’s
6. Once the audit approach has been established, then the auditor needs
to determine the resources needed to perform the audit engagement.
Audit team members will need to be scheduled within the appropriate
time frame so that testing can be performed as planned.
These steps are presented in the text in Exhibit 7-5. These steps apply to an
initial audit engagement as well as an audit engagement for an existing client
company. However, for an initial audit engagement, the process of
understanding and documenting the company’s major business processes is
expected to be particularly time consuming. This is because the auditor will
have little or no prior knowledge of the company and its systems. In the case
of Robatelli’s, the auditors must gain a thorough understanding of each of the
ordering systems (in-store, telephone, and Internet), as well as operations at
the restaurant locations, commissary, customer center, and administrative
offices.
b. What computer-assisted audit techniques could you use in conducting this
audit? Use details from the case to explain why you believe these techniques
would be appropriate for Robatelli’s.
The test data method could be used to assist in conducting the audit of
Robatelli’s Pizzeria’s sales and transaction processing system. Fictitious
Parallel simulation is another CAAT that could be used at Robatelli’s. A
parallel simulation involves the processing of company data under different
systems to determine whether the same results are realized under both
systems. This process could be applied to Robatelli’s transaction processing
system and compared with the daily sales summaries. The reconciliation
process could then be compared with the actual results as determined at
Robatelli’s home office.