Chapter 9 University Oklahoma Refer This Course Contemporary Auditing

PREFACE

Contemporary Auditing: Real Issues and Cases, Ninth Edition can be used as either a

supplemental text for an undergraduate auditing course or as a primary text for a graduate-level

course in auditing. I typically use cases instead of textbook homework assignments when I am

teaching undergraduate auditing. Over the more than thirty years that I have taught auditing, one of

the most common complaints that I have heard from students in my courses is the lack of practical

examples of auditing problems and decision contexts. The cases included in this text overcome this

limitation of the standard undergraduate auditing course by requiring students to address actual, not

contrived, situations that auditing practitioners have been forced to cope with in the past.

South-Western/Cengage Learning’s customized publishing capability makes it possible for

Each case solution includes the following five sections: Synopsis, Key Facts, Instructional

Objectives, Suggestions for Use, and Suggested Solutions to Case Questions. The purpose of the

Synopsis is to provide a concise summary of, and identify the principal issues raised by, each case so

that instructors can quickly decide which cases are most appropriate for their particular purposes. I

included the listing of Key Facts for each case as a pedagogical tool. If instructors use a pure case

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Historically, cases have not been utilized extensively in accounting curricula, particularly at the

undergraduate level. Consequently, auditing instructors may not be familiar with pedagogical issues

related to the use of cases. In fact, many auditing and accounting instructors may not use cases in

their courses because of pedagogical concerns. To mitigate such concerns, I recommend that

instructors refer to the following excellent source regarding the integration of case materials into

accounting courses: J.E. Campbell and W.F. Lewis, “Using Cases in Accounting Courses,” Issues

in Accounting Education, Fall 1991, pp. 276-283. Campbell and Lewis identify several different

For other cases, I typically use a modified case method approach in which I serve as a moderator

for an in-class discussion. I initiate this discussion by using one of several filaunch strategies” that I

have developed for my cases (see next paragraph). Generally, most of the issues posed by the case

questions are adequately addressed by the completion of the class discussion. If not, any remaining

issues raised by the case questions can be dealt with in fairly short order. The greater flexibility

1. Open a class discussion with a fiquickie” group project. For example, several of the

cases in this text involve auditors that made poor judgments in responding to ethical

dilemmas or other decision contexts. Give students ten to fifteen minutes to meet in

groups. Require each group to reach a consensus on the key mistakes made by the given

auditor and to develop a list of alternative decisions that auditor could have or should

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have considered. Each group can then present and defend their conclusions.

2. Choose two or more outgoing students to recreate a key event in a given case, an event

that resulted in a face-to-face meeting of two or more individuals involved in the case.

4. Ask individual students for a personal experience or anecdote relevant to the given case.

5. Use a handout that requires each class member to assign a numerical rating or ordinal

ranking to some facet of the case. Examples of items that can be rated: ethical conduct

of an individual involved in the given case, top three key facts or issues in the case, the

6. Begin a case by requiring individual students to respond to an open-ended prompt such

as, fiThis case is important because . . .” or fiThe most important thing I learned from

this case was . . .”

7. Walk into your classroom, put your books down, single out a student, and inform that

individual that he or she has exactly 60 seconds to provide a concise summary of the

case to be discussed.

8. Ask students to relate the case to a recent event highlighted in the front-page press or

business press.

9. In a case that poses an ethical dilemma, begin the case by asking students to identify the

students typically identify additional information that they would have liked to have had

in analyzing the given issues or aspects of the case.

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12. Ask individual students, in turn, to identify a key fact or issue in the given case—a time-

honored, if not time-worn, strategy for opening a case discussion.

Suggested Syllabus for a Graduate Auditing Course

Modeled Around Contemporary Auditing: Real Issues and Cases

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The following syllabus is intended for a 15-week, one-semester graduate auditing course with an

enrollment of 10 to 20 students. At the University of Oklahoma, we refer to this course as

Contemporary Auditing Issues. Most of the students in this course are enrolled in the Master of

Accountancy program or in our dual Bachelor of Accountancy/Master of Accountancy five-year

You will notice that the fiInterlude” segment between Modules 4 and 5 in the following syllabus

refers to an “Audit Risk Analysis” project. This in-class project is intended to help prepare students

for a similar project that each of them will be required to complete individually. Early in the

semester, each student is assigned a public company for which he or she will perform an extensive

Each student is required to prepare a written report and make an oral presentation, accompanied

by PowerPoint slides, describing the key audit risks posed by the company assigned to him or her.

Typically, these reports begin with a historical overview of the given company and its industry.

Next, students generally discuss the potentially problematic non-financial items that they identified

for the assigned company, such as, a management compensation scheme tied to reported earnings, an

Syllabus for Contemporary Auditing Issues

Course Objectives

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1. To discuss and analyze problematic situations that auditors have dealt with in the past so that

students can obtain a better understanding of how to cope constructively with such scenarios

in the future.

Text

M.C. Knapp, Contemporary Auditing: Real Issues and Cases, Ninth Edition (South-

Western/Cengage Learning, 2012).

AICPA Code of Professional Conduct.

Course Grades

Course grades will be a function of the following items and their respective weights:

Midterm Exam 20%

Examinations

The midterm and final examinations will consist primarily of short answer and essay questions. No

Quizzes & Class Participation

This course is designed to be a seminar and thus requires the active participation of all enrolled

students. Each class period we will discuss specific auditing cases. Students are expected to have

Audit Risk Analysis Project

During the first few weeks of the semester, each student will be assigned a public company for

which he or she will complete an audit risk analysis project—no two students will be assigned the

same company. Each student will assume the role of an audit manager of a public accounting firm

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1. The memorandum should present a brief company profile that comments on, among other items,

2. Of particular interest to the partner will be what some audit firms refer to as “key items.” These

are potential “hot spots” that may demand special attention during the course of the audit. Examples:

3. Somewhere within the memorandum you will need to discuss the apparent financial condition of

the firm and highlight key financial ratios, such as, the current ratio, return on assets, inventory

turnover, etc. In particular, you should bring to the partner’s attention the ratios and trends that may

4. Finally, you should conclude your memo with a recommendation for the partner. For example,

the recommendation may be that the firm appears to be an acceptable client although it does pose a

fairly high level of audit risk and business risk, you may recommend that the company not be

considered any further as an audit client, or your recommendation may be that more information is

needed before an acceptance/rejection decision is made. (If this latter conclusion is reached, you

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Class Presentation and Discussion of Audit Risk Projects: During the final two weeks of the

semester, each student will be required to make a 15-20 minute PowerPoint presentation regarding

his or her audit risk project. This presentation should provide an overview of the numbered items

identified above and/or other appropriate information.

Tentative Class Schedule

Module 1

Key Topic: Introduction/Icebreaker

Cases: Enron, New Century Financial Corporation, Madoff Securities

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Module 2

Key Topic: The Professional Roles of Independent Auditors

Cases: Leigh Ann Walker, Avis Love, Bill DeBurger, Tommy O’Connell, Charles Tollison

Module 3

Module 4

Key Topic: Auditing High Risk Accounts

Cases: Jack Greenberg (inventory), Happiness Express (receivables), CBI (accounts

payable), Golden Bear (revenues), Ligand Pharmaceuticals (sales returns)

Interlude:

Module 6

Key Topic: Internal Control Issues

Mid-Term Examination

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Module 7

Key Topic: Coping with Complex or Unique Client Transactions

Cases: Gemstar-TV Guide, The North Face

Ethics Models Module

Module 8

Key Topic: Ethics and the Private Accountant

Cases: Suzette Washington, F&C International, Wiley Jackson, Arvel Smart, Freescale

Semiconductor

Module 9

Module 11

Key Topic: Evolution of Auditors’ Civil Liability

Cases: Fred Stern, First Securities Company of Chicago

Module 12

Module 13

Key Topic: International Cases: Special Topics

Cases: Republic of Somalia, Republic of the Sudan, Tae Kwang Vina, Kaset Thai Sugar

Company, Institute of Chartered Accountants of India

Presentations

Final Exam