Audit Case

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internal control over financial reporting
c a S eS inc lu de d in t hiS Se ction

5
155 155 165 169 177 185 195

5.1 Simply Steam, Co. 5.2 Easy Clean, Co.

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Evaluation of Internal Control Environment
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Evaluation of Internal Control Environment
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5.3 Red Bluff Inn & Café 5.4 St. James Clothiers

Establishing Effective Internal Control in a Small Business
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Evaluation of Manual and IT-Based Sales Accounting System Risks . . . . . . . . . . . . . . . . . . . . .

5.5 Collins Harp Enterprises 5.6 Sarbox Scooter, Inc. 5.7 Société Générale

Recommending IT Systems Development Controls
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Scoping and Evaluation Judgments in the Audit of Internal Control over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . .

How a Low-Risk Trading Area Caused a $7.2 Billion Loss

instructor resource Manual — do not coPy or redistribute

instructor resource Manual — do not coPy or redistribute

easy clean/simply steam, co.
evaluation of internal control environment
inS tr uc t ional o b je c t ive S
[1] [2] [3] [4]

c a s e

5.1-2

Mark S. Beasley · Frank A. Buckless · Steven M. Glover · Douglas F. Prawitt

To reinforce aspects relevant to the internal control environment. To illustrate the degree of judgment involved in making internal control environment evaluations. To provide students experience in making subjective evaluative judgments. To provide a forum to discuss inquiry techniques as well as inquiry as a form of audit evidence.

[5]

[6]

To provide students direct experience with, and discovery of, issues surrounding the control environment, making inquiries, and the framing (e.g., positive or negative) of information provided by management. To illustrate the potentially inappropriate effects of information “framing.”

KEY FACTS
ƒƒ The instructor has the option of using two versions (i.e., negative and positive) of the case. Simply Steam provides the negative tone or frame while then next case, Easy Clean, provides the positive frame. The cases are identical except for the tone of the interview and some name changes. ƒƒ Easy Clean/Simply Steam (EC/SS), Co. is in the business of providing industrial and domestic carpet steam-cleaning services. ƒƒ EC/SS is a privately-held company and has never been audited. ƒƒ The audit manager recently conducted an interview with management in order to obtain an understanding of EC/SS’s control environment. This interview dialogue is what students rely on to assess EC/SS’s control environment. ƒƒ EC/SS has grown rapidly since it began operations less than six years ago. ƒƒ The case indicates that the instructor will notify the students whether to make all the component assessments or only the overall control environment assessment.

USE OF CASE1
The rich content of the EC/SS case can be used to promote interesting discussions of a wide variety of topics relating to the assessment of a client’s control environment. The EC/SS exercise actively involves students in issues that call for professional judgment. This is a crucial part of their audit education that is not often covered by traditional methods. Involving students in this active learning experience should help develop their competence, heighten their sense of professional skepticism and enhance their ability to exercise professional judgment. This case exercise provides an opportunity 1 This case and the teaching notes have been adapted from the “Steam-Vac, Inc.” case included in the article “Instructional Case: Using Professional Judgment in Control Environment Evaluation,” by R.E. Marden, S.L. Schneider, and G.L. Holstrum, published in Issues in Accounting Education, Vol. 11, No. 2, Fall 1996. The case was...
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