How is audit evidence defined?
searching for and evaluating audit evidence?
LO 1-7 1-26 John Josephs, an audit manager for Tip, Acanoe & Tylerto, was asked to speak at a dinner meeting of the local Small Business Administration Association. The presi- dent of the association has suggested that he talk about the various phases of the audit process to help small business owners better understand what auditors do. John has asked you, his trusted assistant, to prepare an outline for his speech. He suggests that you answer the following:
a. List and briefly describe the various phases of an audit. b. Describe how audit procedures designed for one purpose might also provide evi-
dence for other purposes. Give an example. c. One of the phases involves understanding an entity’s internal control. Why might
the members of the association be particularly interested in the work conducted by auditors in this phase of the audit?
LO 1-8 1-27 Many companies post their financial statements and auditor’s report on their home pages, generally under a heading labeled “investor relations.” Use one of the Internet search engines to do the following:
a. Visit Intel’s (www.intel.com) and Microsoft’s (www.microsoft.com) home pages and review their financial statements, including their auditors’ reports.
b. Search the web for the home page of a non-U.S. company and review its finan- cial statements, including its auditor’s report. For example, BMW’s home page (www.bmwgroup.com, under Investor Relations) allows a visitor to download the financial statements and accompanying audit report as a .pdf file. Identify the auditing standards followed by the company’s auditors.
c. Compare the standard U.S. audit report with the audit report for the non-U.S. company (e.g., BMW). Note that in some cases, non-U.S.-based companies’ reports use a U.S. audit report.
d. Visit the SEC’s website (www.sec.gov), and find the link for EdgarScan. Find, download, and print the auditor’s report for a U.S. company of your choice. Iden- tify whether or not the audit report is an unqualified, or “clean,” opinion and explain how you could tell.
LO 1-8 1-28 Using the audit report included in Chapter 1, identify and briefly explain the phrases or words that indicate to the users that the financial statements are not necessar- ily an “exact” representation of the results of operations and financial position of a company.
DISCUSSION CASE
LO 1-1, 1-2 1-29 You recently attended your five-year college reunion. At the main reception, you encountered an old friend, Lee Beagle, who recently graduated from law school and is now practicing with a large law firm in town. When you told him that you are a CPA and employed by a regional CPA firm, he made the following statement: “You
Final PDF to printer
Chapter 1 An Introduction to Assurance and Financial Statement Auditing 29
mes32502_ch01_001-034.indd 29 09/30/15 02:33 PM
know, if the securities acts had not been passed by Congress in the 1930s, no one would be interested in having an audit performed.”
Required: Draft a memo that highlights your thoughts about Lee’s statement that audits only
take place because they are required by law.
INTERNET ASSIGNMENT
LO 1-1, 1-9 1-30 Using an Internet browser, identify five Internet sites that contain accounting or auditing resources. For each site identified, prepare a brief summary of the types of information that are available. For example, the PCAOB’s home page (www.pcaobus.org) contains extensive information on the organization’s activities (you may use the PCAOB site as one of the five). Your five summaries should not exceed a total of one typed page.
HANDS-ON CASES
EarthWear Online
EarthWear Introduction In this activity you will become further acquainted with EarthWear Clothiers and their auditors Willis and Adams. This introductory activity also provides an opportunity to become familiar with the structure and format of the EarthWear Online cases.
Visit Connect’s additional student resources to find a detailed description of the case and to download required materials.
Additional Student Resources
Visit Connect for author-created problem material to be completed using IDEA software.
Final PDF to printer
mes32502_ch01_001-034.indd 30 09/30/15 02:33 PM
Final PDF to printer
mes32502_ch01_001-034.indd 31 09/30/15 02:33 PM
Final PDF to printer
mes32502_ch01_001-034.indd 32 09/30/15 02:33 PM
Final PDF to printer
mes32502_ch01_001-034.indd 33 09/30/15 02:33 PM
Final PDF to printer
mes32502_ch01_001-034.indd 34 09/30/15 02:33 PM
Final PDF to printer
earthwearA N N U A L R E P O R T 2015
© Digital Vision RF
Company History and Operations EarthWear Clothiers was founded in Boise, Idaho, by James Williams and Calvin Rogers in 1973 to make high-quality clothing for outdoor sports, such as hiking, skiing, fly-fishing, and white-water kayaking. Over the years, the Company’s product lines have grown to include casual clothing, accessories, shoes, and soft luggage. EarthWear offers its products through three retailing options: catalogs, retail outlets, and its website.
The Company strives to provide excellent, high-quality products at reasonable prices. EarthWear has a commitment to excellence in customer service and an unconditional guarantee. The Company is also conscious of its environmental responsibilities. All Company facilities are insulated, recycle, and conserve power. The Company continuously monitors the environmental impact of its products. The Company believes that many of its customers share this concern for the environment.
The Company offers its products principally through regular mailings of its monthly catalogs in the United States, Europe, and Japan. EarthWear has 10 U.S. outlet stores, four in the U.K., two in Germany, and two in Japan. The Company also offers its products over the Internet (www.mhhe.com/earthwear). During 2011, the Company expanded its global presence by launching sites in France, Italy, Ireland, and several eastern European countries. Currently, revenue from catalog sales, retail outlets, and the website are 74 percent, 5 percent, and 21 percent, respectively. Management expects that Internet sales will grow significantly in the future, perhaps replacing catalogs as the major source of sales.
EarthWear was incorporated in Idaho in 1975 and became a Delaware corporation in 1986 when it went public.
2 © Creatas/PunchStock RF
company growth strategy EarthWear’s growth strategy has three elements. First, the Company attempts to increase sales by expanding its customer base and by increasing sales to existing customers through improved product offerings. Second, the Company seeks to generate additional sales by targeted mailings of special issues of its catalogs and by offering its products through its web site. Third, the Company is pursuing additional opportunities to expand its merchandising skills internationally.
catalogs and sales operations During 2015 the Company mailed 12 issues of its regular monthly catalog with an average of 75 pages per issue from its U.S. operations. Worldwide, the Company mailed approximately 160 million full- price catalogs. EarthWear views each catalog issue as a unique opportunity to communicate with its customers. Products are described in visual and editorial detail, and the Company uses such techniques as background stories and distinctive covers to stimulate the readers’ interest.