ACCT 546 – Auditing and Assurance Services

Syllabus – Fall 2017Section 14207D 9:30 – 10:50 TuTh (JKP 104)Section 14208D 11:00 – 12:20 TuTh (JKP 104)

Professor: Sarah Bonner, Ernst & Young ProfessorOffice: ACC 119Office Phone: 213/740-5025Office Hours: 1:00 – 3:00 TuTh; 1:00 – 2:00 Wed; additional hours before exams; and by appt. (also feel free to email me at any time).E-mail: sbonner@marshall.usc.edu

Course Description

This is a graduate course that provides an overview of independent professional audits of companies’ financial statements. Because this is a graduate course, there is a fair amount of reading from the textbook, the professional standards, and the popular business press. This information is meant to serve as background for our class discussions, which will center on the reality of auditing to the extent possible. The reality of the audit experience for individual auditors and audit firms on a day-to-day basis is shaped by compliance with lengthy and detailed standards, firm policy, and regulations, as well as by various pressures from clients and other constituents such as the PCAOB. In class, we will cover these issues from the perspective of auditors who live in this world, but I also will inform you about research findings related to the day’s topics. Researchers can take a step back and examine reality from the perspective of actual auditor behavior and outcomes related to financial statement audits. For example, partner rotation is required on audits, but research evidence suggests that there are some costs to rotation as well as benefits. Overall, then, our class discussions will center on both the practical need, for example, to comply with standards and deal with clients and inspectors, but also on what research evidence tells us, so that you can be a better-informed practitioner, user, or observer of auditing services.

The course is divided into four sections. The first provides a big picture view of auditing in our economy and society, including the role of auditors’ professional judgment and skepticism. The second part of the course covers basic auditing concepts. These basic concepts include assessing and responding to risk. The third and fourth parts of the course go into more detail on these two basic concepts, and the fourth part of the course also covers how auditors report their findings.

Learning Objectives

The overall goal of this course, as mentioned above, is to introduce you to financial statement auditing. Subsumed under this goal are several specific learning objectives and desired outcomes, arranged by the common outcomes developed by the Leventhal School specifically for the M.Acc. and MBT programs. As you can see below, this course will focus primarily on Outcome 1 – Technical, Conceptual, and Problem-Solving and Outcome 4 – Ethical Principles and Professional Standards. To a lesser extent, this course will help you meet Learning Outcomes 2 and 3 – Professional Development and Research/Life-Long Learning.

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Category of Learning Outcomes Specific Objectives

Emphasis in this Class

1. Technical, Conceptual, Problem-Solving

You should gain factual knowledge of key auditing concepts, including, for example: audit risk, control risk, inherent risk, detection risk, independence, professional skepticism, materiality, misstatement, substantive test, analytical procedures, fraud, errors, earnings management, etc.

You should learn fundamental auditing principles . For example, you should understand how the choices of audit risk and materiality and assessed risks affect audit testing.

You should learn to apply factual knowledge and auditing principles to novel situations. That is, you should be able to apply the definitions and descriptions of important terms and fundamental auditing principles.

You should begin to learn higher order auditing skills . For example, you should begin to learn how to conduct analytical procedures and combine evidence to determine whether there are material misstatements.

Strong

2. Professional Development

You should demonstrate the ability to communicate effectively, precisely, and quickly, both orally and in writing. While I will not be grading you on your speaking or writing per se, you will not receive full points on exam and case answers that are written vaguely and incompletely, or on class participation that is vague and incomplete. Much of the auditor’s daily life is about verbal communication with teammates and clients. Also, much of the auditor’s daily life is about compliance with lengthy and detailed standards. Demonstration of such compliance is through written documentation, and poor documentation often is cited in PCAOB inspections.

Moderate

3. Research/Life-Long Learning

You should learn fundamental auditing principles . Having a solid basis in principles allows you to learn more material, more quickly, later.

You should learn to apply factual knowledge and auditing principles to novel situations.

Moderate

4. Ethical Principles and Professional Standards

You should learn the key points of most of the important auditing standards.

Strong

5. Globalization and Diversity

N/A Minimal

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To achieve the above learning objectives, I will employ a combination of background reading, interactive lecture, homework problems with solutions covered in class, in-class problems and short cases, longer (out-of-class) cases, prompt feedback on cases and exams, and required class participation. With regard to class participation, I expect questions from you during class, and you should expect questions from me. As above, in the real world, you will be expected to respond promptly to queries, so it is important to incorporate this element of an auditor’s life into the classroom setting.

Required Materials, Readings, and Other Tools

The following text is required for this course:

Rittenberg, L.E., Johnstone, K.M., and Gramling, A.A., Auditing: A Business Risk Approach (10th edition). Cengage Learning, 2015. ISBN 1305080572. FEEL FREE TO BUY A USED VERSION OF THIS TEXT OR TO RENT IT. YOU DO NOT NEED THE CD THAT COMES WITH THE TEXT.

All other materials, such as auditing standards, supplemental articles, and in-class cases, can be found online or on Blackboard, or will be provided to you. In particular, auditing, ethics and independence, and quality control standards can be found on the PCAOB’s website at pcaobus.org.

Prerequisites and/or Recommended Preparation

The course has no prerequisites other than your participation in the summer intensive program (or approval by the M.Acc. program administrators) and requires no special skills. The quantitative aspects of the course require only elementary math or Excel skills, and you are allowed to use a calculator. Templates will be provided for assignments that require the use of Excel. If they are needed, I will provide you with calculators for exams.

Course Notes and Communication

I will bring copies of slides and other handouts to class each day, so you do not have to download them ahead of time. After class is over, slides and other handouts will be posted to Blackboard. Make sure that you are able to access Blackboard after the first class meeting.

I will communicate with you through Blackboard (which is connected to your USC email account). Please make sure that you have your USC email forwarded to another account if you do not check your USC email account frequently.

Grading Policies

Grade Composition and Grading Expectations

Total points for this course are 1000. Your letter grade will be determined based on your relative performance. I follow the USC Leventhal School of Accounting and Marshall School of Business grading standards for graduate programs. In general, final course grades at the graduate level in a core course average approximately B+ (3.3), but may vary based on class performance. You must receive a C or better to pass a required class, and you must have an overall B average (3.0 minimum) in order to graduate from USC. The graded elements of this course are listed and information about how they will be evaluated are listed below.

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The 1000 points for the course are divided as follows:

Component PointsExam 1Exam 24 Cases (in total)Participation

270 (27%)270 (27%)360 (36%)100 (10%)

1000 (100%)

My expectations for your performance on exams are as follows. Exams will include brief essay questions, most of which will require recall of material, and longer essay questions, most of which will require analysis of presented material using your acquired knowledge. For questions requiring recall, the expectation is that you will recall the material accurately, precisely, and completely. For questions requiring analysis, the expectation is that you will appropriately apply the (correct) knowledge to the question so as to arrive at an accurate, precise, and complete analysis. Preparing for exams is facilitated by keeping up with the work in class, and by practicing with the old exams that I will post on Blackboard. Also, prior to each exam, I will provide you with an outline of the materials we have covered. These outlines also will contain information about additional office hours that I hold prior to exams.

The first exam, which will be held on Thursday, September 28 (in class), will cover the material presented from August 22 through September 26. The second midterm, which will be held on Tuesday, November 7 (in class), will cover the material presented from October 3 through November 2.

My expectations for your performance on cases are that you will exert a great deal of, and thoughtful, effort, so that there is a high probability of arriving at accurate, complete, and precise responses. I also expect that your written responses to cases will appropriately document your effort and thought processes. Whether you complete your cases individually or in a group is YOUR CHOICE; either choice is fine. If you do choose to work in a group, you may work with students in the other section of 546. However, groups may contain no more than 5 members. Also, if you choose to work in a group, everyone in the group will receive the same grade on the case. Perhaps most important, if you choose to work in a group, I expect that you will resolve any group-related issues. Cases should be emailed to me by 5:00 PM on the due dates. File names should contain group members’ names (e.g., “Bonner.Smith.Jones.Case1”). Cases that are turned in late, if only by a few minutes, will receive an automatic grade deduction of 20 points (each case is worth 90 points in total).

Finally, with regard to class participation, I expect that you will be prepared each day to provide quality contributions to class. “Quality” contributions reflect many factors. For example, thoughtful comments and questions that reflect effort are of higher quality than are continual comments and questions that do not reflect effort. I will grade participation each day on a scale of 0-6, and there will be 26 days of graded participation (all class periods except the first day and the days on which we have exams). Thus, you do not have to have “perfect” participation every day to obtain the maximum participation points. However, you may not obtain more than 100 points for class participation.

It is to your advantage to attend class every day, be well prepared, and act professionally (including being on time). This is true for at least four reasons. First, and most significant, the material we cover in class is what is considered most important for the course and, therefore, will be the material tested on exams. Second, class starts promptly at 9:30 or 11:00, not 9:30-ish or

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11:00-ish. Third, participation is part of your grade. Obviously, you cannot participate if you are not there and it may be more difficult to participate appropriately if you are late and miss the first part of what is discussed that day. Fourth, it is in your best interest to act professionally because I reserve the right to decrease your final letter grade by 1/3 for continued unprofessional conduct. Unprofessional conduct includes, but is not limited to, coming to class late; interrupting class with talking, texting, emailing (except when asked to engage in these behaviors as part of class); engaging in activities related to other classes; and so forth. If I have a concern about unprofessional conduct, I will talk with you individually first. If the conduct continues, I will lower your grade. So, for example, if your total points from exams, cases, and participation would earn you a B-, I reserve the right to lower your grade to a C+.

Policy for Making up Exams

It is to your advantage to take the exams at the time they are given. With regard to exams, the policy of the Leventhal School of Accounting is that you should not miss exams unless there is a very serious emergency AND you can properly document this emergency. Also, to the extent possible, you must inform me of the emergency prior to the exam (I understand that this is not always possible). If you miss an exam for something other than a serious emergency and/or you cannot provide documentation, you will receive a grade of -0- on the exam. If there is a serious emergency and you can provide proper documentation and, where possible, notify me of the situation prior to the exam, I will not give a makeup exam. Instead, I will determine your grade from the remaining course requirements. That is, I will “gross up” the points from the other components of your grade so that it is as if you are operating on a 1000-point scale. This policy works to your advantage (which is why I have implemented it) for two reasons. First, it is virtually impossible to create makeup exams that are of the same level of difficulty as the original exam; thus, I tend to err on the side of more difficult when creating the makeup exam. Second, if you have experienced an emergency, your performance on an exam shortly thereafter likely would be compromised.

Finally, you must take the final exam at the scheduled time unless an incomplete contract has previously been approved according to the Leventhal School of Accounting standards (or, of course, unless there is an emergency, as above). Please see the LSOA standards attached to the end of the syllabus for further information.

Policy for Regrading Cases and Exams

To ensure transparency in grading, all of your cases and exams will be returned to you, along with solutions detailing the point breakdown used for grading the case or exam and the correct answers. If you believe that your case or exam has been graded in error, I am happy to regrade it if you do the following. For a simple mistake, such as an addition error, please just show me the error. For a more complicated issue such as a debate about an essay or case answer, please put your concern in writing. You must explain why you believe your answer is correct, where “correct” is defined by the solution sheet. NOTE: For either type of issue, you must contact me within 10 days of receiving the case or exam. If I do not receive a request for regrading within 10 days of your receipt of the case or exam, the grade will be considered final. Additionally, I reserve the right to regrade the entire case or exam.

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ADDITIONAL GUIDELINES

Retention of Graded Coursework

I return all cases and exams to you after they are graded. If you are not present on the day a case or exam is returned, I will continue to bring it to class for one week after the initial return attempt. After that, I will maintain items in my office for you to pick up during office hours. Any items not picked up will be shredded at the end of the 2018 spring semester.

Technology Policy

Laptop and Internet usage is not permitted during academic or professional sessions, except when required by the instructor. The same is true for the use of other personal communication devices, such as cell phones. ANY e-devices (cell phones, laptops, Ipods, tablets, etc.) must be completely turned off during class time unless I instruct you to the contrary. Videotaping faculty lectures is not permitted due to copyright infringement regulations. Audiotaping may be permitted if approved by me. Use of any recorded or distributed material is reserved exclusively for the USC students registered in this class.

USC Statements on Academic Conduct and Support Systems

Academic Conduct:

Students enrolled in any class offered by the Leventhal School of Accounting are expected to uphold and adhere to the standards of academic integrity established by the Leventhal School of Accounting Student Honor Code.  Students are responsible for obtaining, reading, and understanding the Honor Code System handbook.  Students who are found to have violated the Code will be subject to disciplinary action as described in the handbook.  For more specific information, please refer to the Student Honor Code System handbook, available in class or from the receptionist in ACC 101.

Support Systems:

Students whose primary language is not English should check with the American Language Institute http://dornsife.usc.edu/ali, which sponsors courses and workshops specifically for international graduate students. Other support available at USC or other institutions includes the following:

Student Counseling Services (SCS) - (213) 740-7711 – 24/7 on call

Free and confidential mental health treatment for students, including short-term psychotherapy, group counseling, stress fitness workshops, and crisis intervention. https://engemannshc.usc.edu/counseling/ National Suicide Prevention Lifeline - 1-800-273-8255

Provides free and confidential emotional support to people in suicidal crisis or emotional distress 24 hours a day, 7 days a week. http://www.suicidepreventionlifeline.org Relationship & Sexual Violence Prevention Services (RSVP) - (213) 740-4900 - 24/7 on call

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Free and confidential therapy services, workshops, and training for situations related to gender-based harm. https://engemannshc.usc.edu/rsvp/ Sexual Assault Resource Center

For more information about how to get help or help a survivor, rights, reporting options, and additional resources, visit the website: http://sarc.usc.edu/ Office of Equity and Diversity (OED)/Title IX compliance – (213) 740-5086

Works with faculty, staff, visitors, applicants, and students around issues of protected class. https://equity.usc.edu/ Bias Assessment Response and Support

Incidents of bias, hate crimes and micro-aggressions need to be reported allowing for appropriate investigation and response. https://studentaffairs.usc.edu/bias-assessment-response-support/ Student Support & Advocacy – (213) 821-4710

Assists students and families in resolving complex issues adversely affecting their success as a student. Examples: personal, financial, and academic. https://studentaffairs.usc.edu/ssa/ Diversity at USC – https://diversity.usc.edu/

Tabs for Events, Programs and Training, Task Force (including representatives for each school), Chronology, Participate, Resources for Students

Students with Disabilities

USC is committed to making reasonable accommodations to assist individuals with disabilities in reaching their academic potential. If you have a disability which may impact your performance, attendance, or grades in this course and require accommodations, you must first register with the Office of Disability Services and Programs (www.usc.edu/disability). DSP provides certification for students with disabilities and helps arrange the relevant accommodations.  Any student requesting academic accommodations based on a disability is required to register with Disability Services and Programs (DSP) each semester. A letter of verification for approved accommodations can be obtained from DSP. Please be sure the letter is delivered to me (or to your TA) as early in the semester as possible. DSP is located in GFS (Grace Ford Salvatori Hall) 120 and is open 8:30 a.m.–5:00 p.m., Monday through Friday. The phone number for DSP is (213) 740-0776. Email: ability@usc.edu.

Emergency Preparedness/Course Continuity

In case of a declared emergency if travel to campus is not feasible, the USC Emergency Information web site (http://emergency.usc.edu/) will provide safety and other information, including electronic means by which instructors will conduct class using a combination of USC’s Blackboard learning management system (blackboard.usc.edu), teleconferencing, and other technologies.

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Class Notes and Recording Policy

Notes or recordings made by students based on a university class or lecture may only be made for purposes of individual or group study, or for other non-commercial purposes that reasonably arise from the student’s membership in the class or attendance at the university. This restriction also applies to any information distributed, disseminated or in any way displayed for use in relationship to the class, whether obtained in class, via email or otherwise on the Internet, or via any other medium. Actions in violation of this policy constitute a violation of the Student Conduct Code, and may subject an individual or entity to university discipline and/or legal proceedings.

No recording and copyright notice.  No student may record any lecture, class discussion or meeting with me without my prior express written permission.  The word “record” or the act of recording includes, but is not limited to, any and all means by which sound or visual images can be stored, duplicated or retransmitted whether by an electro-mechanical, analog, digital, wire, electronic or other device or any other means of signal encoding. I reserve all rights, including copyright, to my lectures, course syllabi and related materials, including summaries, PowerPoints, prior exams, answer keys, and all supplementary course materials available to the students enrolled in my class whether posted on Blackboard or otherwise.  They may not be reproduced, distributed, copied, or disseminated in any media or in any form, including but not limited to all course note-sharing websites.  Exceptions are made for students who have made prior arrangements with   DSP and me.  

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Course Calendar

Key Dates

Thurs., 9/28 – Exam 1 (in class) Tues., 11/7 – Exam 2 (in class)Monday, 10/9 – Case 1 due (by 5:00) Tues., 11/21 – Case 3 due (by 5:00)Tues., 10/24 – Case 2 due (by 5:00) Thurs., 12/7 – Case 4 due (by 5:00)

NOTES FOR ASSIGNMENTS TO DO BEFORE CLASS:

1. Readings are from the textbook, PCAOB standards (which can be found at pcaobus.org), or posted on Blackboard (e.g., Rapoport, 2015 for class 2). Readings should be done before class.

2. Other assignments to do before class will be from the textbook, handed out, or posted on Blackboard. You do not have to turn in these assignments, so no formal writeup is required. BUT, you should be prepared to discuss them as part of class participation, so writing down your thoughts is a very good idea.

3. For assignments from the textbook, I generally will try to reproduce them in the slides, so you do not have to bring your book to class. For handed out assignments, I DO want you to bring them to class on the day we will discuss them. Finally, for assignments that are posted on Blackboard, I generally will bring copies of these to class on the day we are discussing them, but, of course, you should feel free to print out your own copy and bring that if you prefer.

ClassNo. Date Topic(s)

Reading Assignments to do Before Class

Other Assignments to do Before Class

OVERVIEW OF AUDITING IN ECONOMY AND SOCIETY

1 Tues.,8/22

Introduction

2 Thurs.,8/24

The landscape of financial statement auditing

JGR, Ch. 1 – 1-14, 21-23

Bonner, 2017Rapoport, 2015

3 Tues.,8/29

Economic and societal (investor protection) roles of auditing

JGR, Ch. 2 – 56-65

Ernst & Young, 2017Zeff, 2003 (just skim!)

4 Thurs.,8/31

The audit verification (and communication) processes and their oversight

JGR, Ch. 1 – 14-17, 21-23; Ch. 4 – 132-142;Ch. 5 – 180-185

AS 1001, 1005, 1010, 1015

CAQ, 2012Cullinan, et al., 2013

JGR, Prob. 5-51 – Determine how the CPA violated AS sections 1001, 1005, 1010, 1015 (note that the problem mentions “the 10 standards…”; ignore this -the PCAOB recently reorganized its standards, so this language no longer applies).

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ClassNo. Date Topic(s)

Reading Assignments to do Before Class

Other Assignments to do Before Class

5 Tues.,9/5

Independence in the auditor-client relationship

JGR, Ch. 1 – 17-20;Ch. 4 – 152-163

AS 1005ET 101.01

Arel, et al., 2005Greenstone, 2013Herrick and Barrionuevo, 2002Kowsman, et al., 2014Love, 2015

Answer and be prepared to discuss homework problem (which will be handed out in previous class).

6 Thurs.,9/7

Professional judgment and skepticism in audit work

JGR, Ch. 4 – 142-147

AS 1010, 1015.07-.09, 2301.07, 2401.13

BASIC FINANCIAL STATEMENT AUDITING CONCEPTS

7 Tues.,9/12

Framework for audit engagement; client acceptance; overview of audit risk, materiality, and misstatements

JGR, Ch. 1 – 23-28;Ch. 5 – 185-187, 192-193; Ch. 7 – 286-288

AS 1101.02-.04, 1301.01-.07, 2105.01-.06, 2610.01-.10QC 20.14-.16

Eilifsen and Messier, 2015 – excerpts (part 1)Levitt, 1998

Answer and be prepared to discuss the 3 questions related to the Laventhol & Horwath case (on Blackboard).

8 Thurs.,9/14

Audit risk model; material misstatements in financial statement assertions

JGR, Ch. 5 – 188-190; Ch. 7 – 288-292, 308-313

AS 1101.05-.11; 1105.11, 2101, 2105.07-.12

Eilifsen and Messier, 2015 – excerpts (part 2)

Answer and be prepared to discuss 2 problems on assertions (which will be handed out in previous class).

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ClassNo. Date Topic(s)

Reading Assignments to do Before Class

Other Assignments to do Before Class

ASSESSING RISKS9 Tues.,

9/19General process of risk assessment; assessing inherent risk of errors

JGR, Ch. 5 – 193-194; Ch. 6 – 257-258

AS 1101.05-.08; 2110.01-.17, .41-.45, .59-.64, .70-.71, .74, Appendix A

Read the Asher Farms case – pp. 51, 53-54 (on Blackboard). We will do an audit task with this case in class.

10 Thurs., 9/21

Assessing inherent risk of earnings management and fraud; fraud brainstorming

JGR, Ch. 2 – 42-55;Ch. 9 – 396-403

AS 2110.49-.58, .65-.69, 2401.01-.13, Appendix

Duncan, 2001Elkind, 2013Epstein and Ramamoorti, 2016

Read the Pleasant Pasta case (on Blackboard) and think about the indicated questions to discuss in class.

11 Tues., 9/26

Using analytical procedures to assess risks

JGR, Ch. 7 – 304-309

AS 2110.46-.48

Hitzig, 2004

Read and do question 1 of the Laramie Wire case* (pp. 233-235, on Blackboard). We will do further audit tasks with this information in class.

*Specifically, just calculate common ratios (e.g., Inventory Turnover) for 2014 and 2013, and also changes in account balances from last year to this year (these are standard analytical procedures for IR assessment).

TBD

12 Thurs.9/28

EXAM 1 – IN CLASS

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ClassNo. Date Topic(s)

Reading Assignments to do Before Class

Other Assignments to do Before Class

13 Tues.,10/3

Introduction to controls and integrated audits; assessing quality of entity-wide controls

JGR, Ch. 7 – 302-304

AS 2110.18 -.27, .35-.40, 2605 (SKIM)

Ligthle, Baker, and Castellano, 2015

NOTE: I have posted COSO, 2013, but you do not have to read it as it could, quite possibly, be the most boring document known to humankind. This is for later purposes, like the CPA Exam.

Read the Sarbox Scooter case – pp. 181-183, 189-190 (on Blackboard). Note that pp. 186-188 also are included in the posted file; you do not have to read these pages. We will use them in class to do an audit task.

14 Thurs.,10/5

Assertion-level controls; general process of control risk assessment

JGR, Ch. 3 – 94-95, 101-102

AS 2110.28-.34, .37-.40

TBD

Mon., 10/9

CASE 1 DUE BY 5:00

15 Tues.,10/10

More on assertion-level controls

JGR, Ch. 3 – 95-98;Ch. 9 – 392-395, 403-406

Seipp and Lindberg, 2012

JGR, Problems 3-58,9-44 (items 1-8 only),9-56 (just the misstatement and assertions part, not the substantive tests part) – answer and be prepared to discuss.

Also, evaluate the tips in the Seipp article and be prepared to discuss any judgment problems you could see being created by the procedures they recommend.

16 Thurs., 10/12

Tests of controls, including sampling

JGR, Ch. 6 – 237-241, 252; Ch. 8 – 343-355;Ch. 9 – 412-414

AS 1105.13-.28, 2301.16.-.35, 2315.01-.14, .31-.43

Hall, et al., 2013

JGR, Problem 9-54 (part b. only) – answer and be prepared to discuss.

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ClassNo. Date Topic(s)

Reading Assignments to do Before Class

Other Assignments to do Before Class

17 Tues., 10/17

Sampling, continued; Internal control reports

JGR, Ch. 3 – 102-111;Ch. 8 – 355-359;Ch. 15 – 746-749

AS 2201.62-.69, .85-.92, Appendix A

Reread the Sarbox Scooter case – pp. 181-183 (on Blackboard). Note pp. 185, 191-194 are also included; we will use these in class to do an audit task.

18 Thurs., 10/19

Basic principles of evidence and documentation

JGR, Ch. 6 – 230-244

AS 1105

JGR, Problems 6-48 (items a.-h. only) and 9-56 (for the misstatement/assertions affected parts, refer to your notes from class 15) – answer and be prepared to discuss

19 Tues., 10/24

Basic principles of evidence and documentation, continued; Intro. to substantive tests

JGR, Ch. 6 – 250-255, 257-261

AS 1210, 1215.1-.13

Tues., 10/24

CASE 2 DUE BY 5:00

RESPONDING TO RISKS AND REPORTING

20 Thurs., 10/26

Planning and performing substantive analytical procedures

JGR, Ch. 6 – 244-250

AS 2305

Read the Majestic Hotels case’s 2 examples of analytical procedures (last 6 pages of the posted materials on Blackboard; the rest is background); be ready to discuss how well the auditors did on these and what you would do instead.

21 Tues., 10/31

Performing substantive analytical procedures; planning and performing tests of details

JGR, Ch. 9 – 421-428; Ch. 10 – 488-496;Ch. 11 – 552-556

AS 2301.39-.46, 2310, 2510

McConnell, et al., 2014

Read the Bud’s Big Blue Mfg. case -- pp. 273-274 (on Blackboard). Note pp. 275-283 are also posted; we will use these in class to do an audit task.

Read Wally’s Billboard and Sign Supply case -- p. 249 (on Blackboard). Note pp. 250-264 are also posted; we will use these

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in class to do an audit task.ClassNo. Date Topic(s)

Reading Assignments to do Before Class

Other Assignments to do Before Class

22 Thurs., 11/2

Performing tests of details, including sampling

JGR, Ch. 8 – 346, 359-372

AS 2315.15-.30

23 Tues., 11/7

EXAM 2

24 Thurs., 11/9

Auditing estimates JGR, Ch. 6 – 253-255; Ch. 9 – 428-429

AS 2501

Read Wildcat Sporting Goods case, pp.1-3 (on Blackboard). There are several more pages and an Excel file posted that we will use in class.

Read RedPack Beer case, pp. 301, 306-308 (on Blackboard). We will use the other pages in class to audit the estimate.

25 Tues., 11/14

End-of-year testing; Substantive testing related to fraud

JGR, Ch. 9 – 430-431; Ch. 10 – 496; Ch. 11 - 562

AS 2110.49-.58, .65-.69; 2301.12-.15

Carmichael, 2010Clikeman, 2013Morhweis, 2003

26 Thurs., 11/16

Aggregating results and materiality

JGR, Ch. 14 – 664-668; Ch. 16 – 775-778

AS 2810.10-.26

JRG, Problem 16-37 – answer and be prepared to discuss

Read Precision Vision case and be prepared to do in class (on Blackboard)

27 Fri., 11/17

Panel discussion

Tues., 11/21

CASE 3 DUE BY 5:00; NO CLASS BECAUSE OF PREVIOUS FRIDAY CLASS

28 Thurs.11/23

USC CLOSED/ HAPPY THANKSGIVING!

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29 Tues., 11/28

Finishing the audit; going-concern judgments; etc.

JGR, Ch. 14—668--670, 677-689

AS 2415, 2820.1-.11

30 Thurs., 11/30

Auditor reports JGR, Ch. 15

KPMG, 2014

JGR, Problem 15-60 – answer and be prepared to discuss

Thurs. 12/7

CASE 4 DUE BY 5:00

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Reference List

Class 2

Bonner, S.E., “Notes on Anecdotal and Empirical Evidence,” 2017.

Rapoport, M., “PWC Settles with MF Global Investors,” Wall Street Journal (April 18-19, 2015), p. B2.

Class 3

Ernst & Young, The Sarbanes Oxley Act at 15: Enhancing the Reliability of Financial Reporting and Audit Quality (2017).

Zeff, S.A., “How the U.S. Accounting Profession Got Where It Is Today: Part II,” Accounting Horizons (December 2003), 267-286.

Class 4

Center for Audit Quality, “Guide to PCAOB Inspections,” 2012.

Cullinan, C.P., C.E. Earley, and P.B. Roush, “Multiple Auditing Standards and Standard Setting: Implications for Practice and Education,” Current Issues in Auditing (2013), C1-C10.

Lindberg, D.L., and D. L. Seifert, “A Comparison of U.S. Auditing Standards with International Standards on Auditing,” The CPA Journal (April 2011), 17-21.

Class 5

Arel, B., R.G. Brody, and K. Pany, “Audit Firm Rotation and Audit Quality,” The CPA Journal (January 2005), 36-39.

Greenstone, M., “See Red Flags, Hear Red Flags,” The New York Times (December 6, 2013), ??

Hermanson, D.R., “How Consulting Services Could Kill Private-Sector Auditing,” The CPA Journal (January 2009), 6-9.

Herrick, T. and A. Barrionuevo, “Were Auditor and Client Too Close-Knit?” The Wall Street Journal (January 21, 2002), C1.

Kowsman, P., D. Enrich, and M. Patrick, “KPMG Faces Criticism for Espirito Santo Audit Work,” The Wall Street Journal (August 28, 2014)

PCAOB, “Auditor Independence and Audit Firm Rotation,” PCAOB Concept Release, 2011.

Class 7

Eilifsen, A., and W.F. Messier, Jr., “Materiality Guidance of the Major Public Accounting Firms,” Auditing: A Journal of Practice & Theory (May 2015), 3-26, selected excerpts.

Levitt, A., Jr., “The Numbers Game,” The CPA Journal (December 1998), 14-18.

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Class 8

Eilifsen, A., and W.F. Messier, Jr., “Materiality Guidance of the Major Public Accounting Firms,” Auditing: A Journal of Practice & Theory (May 2015), 3-26, selected excerpts.

Class 11

Duncan, J.R., “Twenty Pressures to Manage Earnings,” The CPA Journal (July 2001), 32-37.

Elkind, P. “The Confessions of Andy Fastow,” Fortune (July 1, 2013).

Class 12

Boyle, D.M., J.F. Boyle, and B.W. Carpenter, “Insights into the SEC’s Accounting Quality Model,” The CPA Journal (May 2015), 16-21.

Hitzig, N.B., “The Hidden Risk in Analytical Procedures: What WorldCom Revealed,” The CPA Journal (February 2004), 32-35.

Class 13

COSO (Committee of Sponsoring Organizations of the Treadway Commission), Internal Control-Integrated Framework, Executive Summary, May 2013.

Lightle, S.S., B. Baker, and J.F. Castellano, “Assessment of Tone at the Top: The Psychology of Control Risk Assessment,” The CPA Journal (June 2015), 50-55.

Class 15

Seipp, E., and D. L. Lindberg, “A Guide to Effective Audit Interviews,” The CPA Journal (April 2012), 26-31.

Class 16

Hall, T.W., A.W. Higson, B.J. Pierce, K.H. Price, and C.J. Skousen, “Haphazard Sampling: Selection Biases and the Estimation Consequences of These Biases,” Current Issues in Auditing (No. 2, 2013), P16-P22.

Class 19

KPMG, “Audit Documentation,” 2014.

Class 22

McConnell, D.K., Jr., C.H. Schweiger, and S.C. McConnell, “The External Confirmation Process,” The CPA Journal (January 2014), 40-43.

Class 25

Carmichael, D.R., “Double-Entry, Nonstandard Entries, and Fraud,” The CPA Journal (October 2010), 62-65.

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Clikeman, P.M., Introduction and Chapter 1, Called to Account: Financial Frauds that Shaped the Accounting Profession. New York, NY: Routledge, 2013.

Mohrweis, L.C., “Lessons from the Baptist Foundation Fraud,” The CPA Journal (July 2003), 50-51.

Class 30

KPMG (UK), Audit Committees’ and Auditors’ Reports: A Survey of December Year-Ends under the New Reporting, May 2014.

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