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Commerce 4AD3 Introduction to Auditing Fall 2013 Course Outline

Accounting and Financial Services Management DeGroote School of Business

McMaster University

COURSE OBJECTIVE

For those considering a career as a public accountant, this first auditing course will provide you

with an understanding of the concepts of auditing and the auditing process and prepare you for

the role of public accountant.

INSTRUCTOR AND CONTACT INFORMATION

INSTRUCTOR INFORMATION:

Name: Dr. Susan McCracken Office Hours:

Tues: 10:30am-11:30am

Fri: 11:30am-12:30pm

or, by Appointment

Office: DSB/318/RJC 232 Course location: Tues MDCL/1009

Thurs DSB/AB103

E-Mail: smccrac@mcmaster.ca Time offered: Tues 11:30am-2:20pm

Fri 8:30am-11:20am

Phone: 905 525-9140 Ext. 23993

Course Website: http://www.degroote.mcmaster.ca/UG/outlines/Accounting.html

COURSE ELEMENTS

Credit Value: 3 Leadership: Yes IT skills: Yes Global view: Yes

Avenue: Yes Ethics: Yes Numeracy: Yes Written skills: Yes

Participation: Yes Innovation: Yes Group work: Yes Oral skills: Yes

Evidence-based: Yes Experiential: Yes Final Exam: Yes Guest speaker(s) Yes

COURSE DESCRIPTION

This course is designed to provide you with an understanding of issues relevant to the public

accounting profession, and a brief introduction to audit testing and procedures. You will learn to

think critically about issues facing the accounting profession, by analyzing cases, completing in

class exercises and “real world” group projects. Upon completion of the course, you will be

familiar with the public accounting environment (including professional standards, legal liability,

ethics and regulation), the planning requirements of an audit engagement, how to complete

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various auditing procedures, an how to interpret various types of auditor’s reports. Topics to be

covered in the course include: role of auditing and the regulators, auditing standards, auditor’s

reports, ethics, legal liability, the audit risk model, fraud, internal controls, audit assertions, audit

evidence, and substantive testing.

The course is designed to be hands-on during class time, with case discussions, group activities

and discussion of textbook problems. Lecturing will be minimized, and thus, it is required that

you read the assigned materials before coming to class.

LEARNING OUTCOMES

Upon completion of this course, students will be able to complete the following key tasks:

Evaluate potential client’s public accounting needs

Play the role of an audit professional in several public accountant decision making settings

Assess a client business environment and its potential impact on the assurance process;

Determine and apply basic audit procedures necessary in specific audit client circumstances;

and

Detail an audit plan that is specific to the assurance assignment.

REQUIRED AND OTHER COURSE MATERIALS AND READINGS

We will use the following reading materials, available from the McMaster bookstore or online, in

this course.

REQUIRED:

1) Smieliauskas and Bewley, Auditing: An International Approach. 2012. Sixth Edition

(“SB”)

2) Canadian Institute of Chartered Accountants Handbook, (Assurance Sections) (“HB”)

(available at eresources online)

3) Rules of Professional Conduct, Institute of Chartered Accountants of Ontario (available

at http://www.icao.on.ca/Resources/Membershandbook/1011page5011.aspx) (“RPC’s”)

4) Articles and cases posted on Avenue: http://avenue.mcmaster.ca

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EVALUATION

WEIGHTING OF THE COMPONENTS OF COURSE EVALUATION: The components of the course

grade will be weighted as follows, tentatively. The instructor reserves the right to modify the

weightings to adjust for more or less material covered during the semester.

COMPONENT COMMENT PERCENT

Midterm Individual 20

Final Individual 30

Case Hand-ins Individual 5

Confirmation.com assignment Group 15

Research project (written/oral) Group 20

Participation Individual 10

Total 100%

NOTE: The use of a McMaster standard calculator is allowed during examinations in this course.

See McMaster calculator policy at the following URL:

http://www.mcmaster.ca/policy/Students-AcademicStudies/examinationindex.html

CONVERSION

At the end of the course your overall percentage grade will be converted to your letter grade in

accordance with the following conversion scheme.

LETTER GRADE PERCENT LETTER GRADE PERCENT

A+ 90 – 100 C+ 67 - 69 A 85 - 89 C 63 - 66 A- 80 - 84 C- 60 - 62 B+ 77 - 79 D+ 57 - 59 B 73 - 76 D 53 - 56 B- 70 - 72 D- 50 - 52 F 00 – 49

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COMMUNICATION AND FEEDBACK

Students who are uncomfortable in directly approaching an instructor regarding a course concern

may send a confidential email to the respective Area Chair (ylchan@mcmaster.ca) or the

Associate Dean (adbusac@mcmaster.ca).

Students who wish to correspond with instructors or TAs directly via email must send messages

that originate from their official McMaster University email account. This protects the

confidentiality and sensitivity of information as well as confirms the identity of the student.

Emails regarding course issues should NOT be sent to the Area Administrative Assistants.

Instructors are required to provide evaluation feedback for at least 10% of the final grade to

students prior to Week #8 in the term.

Instructors may conduct an informal course review with students by Week #4 to allow time for

modifications in curriculum delivery.

Students who wish to have a course component re-evaluated must complete the following form:

http://www.mcmaster.ca/policy/Students-AcademicStudies/Form_A.pdf

In order for the component to be re-read:

the component must be worth 10% or more of the final grade in the course

students pay a fee of $50 in Gilmour Hall #209 (receipt is then brought to APO)

the Area Chair will seek out an independent adjudicator to re-grade the component

an adjustment to the grade for the component will be made if a grade change of three points

or greater on the 12 point scale (equivalent to 10 marks out of 100) has been suggested by the

adjudicator as assigned by the Area Chair

if a grade change is made, the student fee will be refunded

CASE HAND-INS

We will be discussing 6 in-class cases throughout the term. You are expected to read and prepare

these cases prior to class. Please complete the Case Template for 5 of the cases discussed in

class. These templates will be marked on a “pass/fail basis”. You will receive 1 mark for each

“pass” template handed in and 0 marks for each “fail” template handed in.

The case template is due at the beginning of the class for which it is assigned. It may be emailed

to me or handed in at the beginning of class. Late assignments will not be accepted; if you are

unable to attend class, you may have someone else deliver your assignment or you may email it

in electronic form, prior to the start of class. Those emailed after class starts will not be accepted.

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CONFIRMATION.COM ASSIGNMENT

Confirmation.com is a “hands-on” electronic assignment to be completed in groups of 4-5. Each

group will take on the role of the audit team auditing the bank confirmations for “Simply Soups”,

a fictional company.

We will discuss this assignment in detail in class. The report and working paper deliverables

from the confirmation process are due the beginning of Class 10 (Nov 12/15 13). The

deliverables may be emailed to me or handed in at the beginning of class. Late assignments will

not be accepted; if you are unable to attend class, you may have someone else deliver your

assignment or you may email it in electronic form, prior to the start of class. Those emailed after

class starts will not be accepted.

RESEARCH WRITTEN AND ORAL PROJECT (DETAILS ATTACHED)

A team of 4-5 individuals will take on the role of the audit engagement team for a publicly-

traded Canadian company. The team is required to develop an audit strategy for the ‘client

company’, using the company’s most recent annual report and other publicly-available

information. This will require a written report and a class presentation. The project will give you

an opportunity to consider how the concepts and techniques discussed in the course would apply

to the audit of an actual business. All team members must actively participate. The instructor

must approve the client company and assign the presentation date.

A maximum of 15 TYPED PAGES (double spaced, 12 pitch Times New Roman, portrait

orientation, excluding tables, figures, and bibliography) is to be submitted with an

appropriate bibliography.

A “professional” 10-minute class presentation of your findings and then 5-minute question and

discussion period is allocated to each team. All members receive the same mark. Once teams are

assigned they may not be changed. The presentation mark will comprise 50% of the total

research project mark (i.e., 10% of your total grade).

PARTICIPATION

Name cards and class pictures are used to help give credit for your participation. You must have

a name card with your full first and last name clearly written and displayed in front of you for

every class. You also must submit a picture of yourself with identifying information (name,

student number, email address) as well as your hometown and a “fun fact” to me by the third

class. I use these cards to “get to know” my students.

Participation in discussion aids in assimilation of concepts and is an essential part of your

professional development. Classes are more interesting and intellectually stimulating if there is

participation from everyone. In order for you to gain maximum benefit from discussions, it is

essential that you complete assigned cases, text materials and readings in advance, as well

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as attempt assigned problems. Therefore class participation marks will be awarded on the basis

of each student’s contribution to discussions, and relevant questions and comments during

lectures. Class participation is not equivalent to class attendance. Specifically, students who fail

to participate in class discussions will receive a class participation mark of zero, regardless of

regular class attendance. Students unable to attend class should inform the instructor before class

of the conflict.

EXAMINATION

There will be a midterm and a comprehensive final examination during the examination period.

There will be no makeup for the midterm examination. Absence from the scheduled midterm

without prior approval of the instructor will result in a grade of zero. Approval for absence from

an examination will only be granted for a valid reason (e.g. illness), and this portion of the grade

will be re-weighted to the final examination. Absence from the final examination will be

governed by the rules customarily followed by the School of Business. Examinations will be

based on all assigned readings and cases, as well as class discussions and presentations.

Note: Students are permitted to use only the McMaster standard calculator (CASIO FX-

991) during examinations.

ACADEMIC DISHONESTY

It is the student’s responsibility to understand what constitutes academic dishonesty. Please refer

to the University Senate Academic Integrity Policy at the following URL:

http://www.mcmaster.ca/policy/Students-AcademicStudies/AcademicIntegrity.pdf

This policy describes the responsibilities, procedures, and guidelines for students and faculty

should a case of academic dishonesty arise. Academic dishonesty is defined as to knowingly act

or fail to act in a way that results or could result in unearned academic credit or advantage.

Please refer to the policy for a list of examples. The policy also provides faculty with procedures

to follow in cases of academic dishonesty as well as general guidelines for penalties. For further

information related to the policy, please refer to the Office of Academic Integrity at:

http://www.mcmaster.ca/academicintegrity

REQUESTING RELIEF FOR MISSED ACADEMIC WORK

Students may request relief from a regularly scheduled midterm, test, assignment or other course

component in the following two ways:

a) for absences from classes lasting up to five (5) days; or

b) for absences from classes lasting more than five (5) days.

a) For absences from classes lasting up to five (5) days

Students must use the MSAF (McMaster Student Absence Form). This is an on-line, self-

reporting tool, for which submission of medical or other types of supporting documentation is

normally not required. Students may use this tool to submit a maximum of one (1) request for

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relief of missed academic work per term as long as the weighting of the component is worth 29%

of the final grade or less. Students must follow up with their course instructors regarding the

nature of the relief within two days of submitting the form. Failure to do so may negate the

opportunity for relief. It is the prerogative of the instructor of the course to determine the

appropriate relief for missed term work in his/her course.

If the value of the component is worth 30% or more, students must report to the APO to discuss

their situation and will be required to provide appropriate supporting documentation.

b) For absences from classes lasting more than five (5) days

Students cannot use the MSAF. They MUST report to the APO to discuss their situation and

will be required to provide appropriate supporting documentation.

Students who wish to submit more than one request for relief of missed academic work per term

cannot use the MSAF. They must report to the APO and discuss their situation with an academic

advisor. They will be required to provide supporting documentation and possibly meet with the

Manager.

The MSAF cannot be used during any final examination period.

Students unable to write a mid-term at the posted exam time due to the following reasons:

religious; work-related (for part-time students only); representing university at an academic or

varsity athletic event; conflicts between two overlapping scheduled mid-term exams; or other

extenuating circumstances, have the option of applying for special exam arrangements. Please

see the DeGroote Missed Course Work Policy for a list of conflicts that qualify for academic

accommodation

http://ug.degroote.mcmaster.ca/forms-and-resources/missed-course-work-policy/

Such requests must be made to the Academic Programs Office at least ten (10) working days

before the scheduled exam along with acceptable documentation. Instructors cannot themselves

allow students to unofficially write make-up exams/tests. Adjudication of the request must be

handled by the Academic Programs Office.

If a mid-term exam is missed without a valid reason, students will receive a grade of zero (0) for

that component.

STUDENT ACCESSIBILITY SERVICES

Student Accessibility Services (SAS) offers various support services for students with

disabilities. Students are required to inform SAS of accommodation needs for course work at the

outset of term. Students must forward a copy of such SAS accommodation to the instructor

normally, within the first three (3) weeks of classes by setting up an appointment with the

instructor. If a student with a disability chooses NOT to take advantage of an SAS

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accommodation and chooses to sit for a regular exam, a petition for relief may not be filed after

the examination is complete. The SAS website is:

http://sas.mcmaster.ca

POTENTIAL MODIFICATIONS TO THE COURSE

The instructor and university reserve the right to modify elements of the course during the term.

The university may change the dates and deadlines for any or all courses in extreme

circumstances. If either type of modification becomes necessary, reasonable notice and

communication with the students will be given with explanation and the opportunity to comment

on changes. It is the responsibility of the student to check their McMaster email and course

websites weekly during the term and to note any changes.

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COURSE SCHEDULE

Commerce 4AD3 Introduction to Auditing

Fall 2013 Course Schedule

Session 1 (Sept 6/10 13) – Introduction to Auditing and Roles and Responsibilities

READ:

SB - Ch 1 and Ch 2

Class discussion: 1.2,1.3, 2.1, 2.7, 2.8, 2.16, EP2-3, EP2-6

Session 2 (Sept 13/17 13) – Auditors’ Ethical and Legal Responsibilities

READ:

SB Ch 3

ICAO Rules of Professional Conduct

Case: Leigh Anne Walker, Staff Accountant

Class discussion: 2.EP11, 3.1, 3.3, 3.8, 3.10, 3.11, EP3-1, EP3-3, EP3-5

Session 3 (Sept 24/27 13) – Auditor’s Report

READ:

SB Ch 4

Picture Factory Simulation

Class discussion: 4.1, 4.10, 4.7, EP4-3, EP4-7, EP4-18

Session 4 (Oct 1/4 13) – Preliminary Audit Planning: Understanding the Auditee

READ:

SB Ch 5

Case: Ocean Manufacturing, Inc.

Class discussion: 5.4, 5.7, 5.8, 5.9, 5.12, 5.21, 5.32, 5.33, 5.37, 5.38, 5.43, 5.47, DC5-3, DC5-4, DC5-5

Session 5 (Oct 8/11 13) – Assessing Risks and Internal Control and Fraud Risk Assessment

READ:

SB Ch 6 & 7

Case: Asher Farms Inc.

Class discussion: 6.1,6.3, 6.10, 6.13, 6.18, 6.43, DC6-1, DC6-6, 7.2, 7.7, 7.8, 7.17, 7.18, EP7-3, DC7-2

Session 6 (Oct 15/18 13) – Audit Evidence and Assurances

READ:

Ch 8

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No case: Study for Midterm

Class discussion: 8.4, 8.9, 8.16, 8.17,8.23, 8.24, 8.31, EP8-9

MIDTERM – Saturday Oct 19th

10am-12pm

Session 7 (Oct 22/25 13) – Control Assessment and Testing, Sampling

READ:

SB Ch 9 & Ch 10

Case: Hollate Manufacturing

Class discussion: 9.21, 9.4, 9.7, 9.8, 9.13, 9.16, 9.22, 9.28, 9.37, 9.44, 9.47, 9.77, 9.84, 9.EP6, 9.DC4,

Session 8 (Oct 29/Nov 1 13) MIDTERM Recess – No Class

Session 9 (Nov 5/8 13) ) – Revenues, Receivables and Receipts Process & Purchases,

Payables, Payments Process

READ:

SB Ch 11 & Ch 12

Confirmation.Com Part 1

Case: Laramie Wire Manufacturing

Class discussion: 11.14, 11.15, 11.17, 11.25, 11.26, EP11-2, EP11-8, DC11-6, 12.6, 12.9, 12.12, 12.17, DC12-4

Session 10 (Nov 12/15 13) – Production and Payroll Process; Finance and Investment

Process

READ:

SB Ch 13 & 14

Confirmation.com Part 2 – Report Due

Class discussion: 13.6, 13.13, 13.27, 13.30, 13.34, EP13-2, EP13-8, 14.1, 14.9, 14.10, 14.20, EP14-7,

Session 11 (Nov 19/22 13) – Completing the Audit & Applying Professional Judgment to

Form the Audit Opinion and Issue the Audit

READ:

SB Ch 15 & 16

Case: The Runner’s Shop

Class discussion: 15.1, 15.9, 15.10, 15.15, 15.17, 16.8, 16.9, 16.10

Session 12 (Nov 26/29 13)) – Group Project Presentations & Group Report Due

Session 13 (Dec 3) – Review

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NOTE: ALL MATERIAL COVERED IN CLASS PRESENTATIONS COULD BE TESTED ON

FINAL EXAMINATION

ALL PREPARE-FOR-CLASS-DISCUSSION QUESTIONS MAY NOT BE COVERED

DUE TO TIME PRESSURES. HOWEVER, YOU ARE STILL RESPONSIBLE FOR ALL

ASSIGNED MATERIALS

THERE MAY BE OTHER ASSIGNED MATERIALS HANDED OUT FROM TIME TO

TIME. THESE ARE ALSO PART OF YOUR RESPONSIBILITIES

4AD3

RESEARCH PROJECT – Fall 2013

The term project is a hands-on exercise in planning a financial statement audit. The project will

give you an opportunity to consider how the concepts and techniques discussed in the course

apply in auditing an actual business.

A team of individuals will take on the role of the audit engagement team for a publicly-traded

Canadian company. The team is required to develop an audit strategy for the ‘client company’,

using the company’s most recent annual report and other publicly-available information.

Detailed instructions are below.

This will require a written report and a class presentation. All team members must actively

participate.

Project Instructions

Assume that you are the engagement team conducting the financial statement audit of your

assigned company. You are required to prepare a planning memorandum, and present an

overview of it to the rest of the class on November 26/29 13. The planning memo paper is also

due on November 26/29 13 for all teams. The project is worth 20% of the course grade, 50% for

the presentation and 50% for the paper.

You can assume that the financial statements included in the annual report are not yet audited

and you are responsible for planning the audit of these statements.

Use the information provided in the company’s Annual Report and other publicly documents

relevant to your planning process. State any assumptions you find it necessary to make. You are

not to contact the organization or interview people for this project. You also should not contact

the actual auditors as they will need to keep all the client information confidential.

Please feel free to ask the instructor for further guidance if any of the requirements are not clear.

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Required:

Assume the role of the entity’s external auditor and prepare a planning memorandum with the

following sections: (% marks available for each section noted in brackets)

1. Prepare a time budget for the project. Note which team member(s) are assigned to each

section and estimate the amount of time each will spend to complete the work. Present as

Exhibit 1. (2%)

2. Describe the business to demonstrate your understanding of the client company. This is a

new company to the audit partner and the audit firm. (15%)

3. Determine the audit risk level your team is willing to accept for this engagement. Justify

your choices (15%)

4. Determine the materiality level you will use for planning purposes. Justify your choices.

(15%)

5. Present the result of key analytical review procedures and impact on your audit approach.

Summarize your findings in the report and provide details in an Exhibit. (20%)

6. Based on your research and assumptions above, state what you think will be the two or

three key audit issues to address in the engagement, and their impact on your audit

approach. (25%)

7. Summarize your preliminary overall audit strategy. (5%)

8. Prepare a time summary showing actual time spent by each team member on each section

of the planning exercise. Add this information to Exhibit 1. (3%)

The maximum length of your paper should not exceed 15 pages, excluding exhibits, typed,

double-spaced. Please hand in one copy of your company’s Annual Report with your paper.

The presentation should be 10 minutes, plus 5 minutes for questions and class discussion. Please

provide a handout of your slides to the instructor prior to the presentation.

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ONE PAGE SCHEDULE

Session 1 Sept 10/6 13

Introduction/Assurance Services and Roles and Responsibilities Ch 1 & Ch 2

Session 2 Sept 17/13 13

Ethics and Legal Liability Ch 3 (Leigh Anne Walker)

Session 3 Sept 24/27 13

Auditors’ Reports Ch 4

Session 4 Oct 1/4 13

Understanding the Auditee Ch 5 (Ocean Manufacturing, Inc.)

Session 5 Oct 8/11 13

Assessing Risks and Internal Control and Fraud Risk Assessment Ch 6 & Ch 7 (Asher Farms Inc.)

Session 6 Feb Oct 15/18 13

Audit Evidence and Assurance Ch 8

MIDTERM – Saturday Oct 19 10am-12pm

Session 7 Oct 22/25 13

Control Assessment and Testing, Sampling Ch 9 & Ch 10 (Hollate Manufacturing)

Session 8 Oct 29/Nov 1 13 –Midterm Recess – No classes

Session 9 Nov 5/8 13

Revenues, Receivables and Receipts Process and Purchases, Payables, Payments Process Ch 11 & Ch 12 (Laramie Wire Manufacturing)

Session 10 Nov 12/15 13

CONFIRMATION.COM ASSIGNMENT DUE

Production and Payroll Process and Finance and Investment Processes Ch 13 & Ch 14

Session 11 Nov 19/22 13

Completing the Audit, Applying Professional Judgment to Form the Audit Opinion and Issue the Audit Report Ch 15 & Ch 16 (The Runner’s Shop)

Session 12 Nov 26/29 13

GROUP PROJECT PRESENTATIONS AND REPORT DUE

Session 13 Dec 3 13

Review

FINAL EXAM - DATE TO BE ANNOUNCED

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CASE STUDY WORKSHOPS

As Commerce students interested in the accounting discipline, you will be required to complete

assignments, tests and exams that are given in the form of case studies. Completing case

assignments and writing case exams require a unique approach and skills set. As part of this

course, you will be expected to attend a mandatory case study workshop. The objective of the

case study workshop is to help you to answer case studies in this course, other courses and

professional exams in accounting.

There will be two different case study workshops presented this year:

-Commerce III workshop is for students who have neither passed 3AB3, nor 3AC3 as at

September 1, 2013, and this will be held in September 2013

-Commerce IV workshop is for students who have either passed 3AB3, or 3AC3, or both as at

Sept 1, 2013 which will also be held in September 2013.

You only need to attend one session of one of the workshops. The tentative dates and times are:

Commerce III Workshop Sessions

Session Date Session Time Location

Monday September 16th 6pm-8pm DSB/505

Saturday September 21st 9am-11am DSB/505

Saturday September 21st 11:30am-1:30pm DSB/505

Tuesday September 24th 6:30pm-8:30pm DSB/505

Wednesday September 25th 6pm-8pm DSB/505

Commerce IV Workshop Sessions

Session Date Session Time Location

Monday September 23rd 6pm-8pm DSB/505

Saturday September 21st 2pm-4pm DSB/505

Tuesday September 17th 6:30pm-8:30pm DSB/505

Each session can accommodate a maximum of 45 students. You have to pre-register for the

session of your choice at http://csw.degroote.mcmaster.ca. Registration takes place on a first-

come-first-serve basis.

The workshops will be presented by Ms. Michelle Fisher, CPA, CA, Senior Accountant, Audit;

KPMG LLP, Hamilton, ON.