ACCT 473-FINANCIAL STATEMENT AUDITING
LEVENTHAL SCHOOL OF ACCOUNTING
UNIVERSITY OF SOUTHERN CALIFORNIA
SPRING 2006
Sec.
Time
Location
14135D 10:00-11:50 am TTH
HOH 303
14136D 12:00-1:50 am TTH
HOH 303
14137D
2:00-3:50 pm F
THH 102
I. GENERAL INFORMATION
Faculty:
Office Location:
Office Hours:
Office Phone:
Email Address:
USC Emergencies:
USC Emergency Information Line:
USC Information:
Course Prerequisites:
Co-Requisites:
Required Materials:
Quasi required materials:
Professor Chrislynn Freed, CPA
ACC 229
MW 12:15-2:15PM; TTH 2-3:00 PM
(213) 740-4867
cfreed@marshall.usc.edu
(213) 740-4321
(213) 740-9233
(213) 740-2311 and 91.5 KUSC FM Radio
ACCT 371b, 373
None
1) Custom Published Text and Cases
2) Course Documents Posted on Blackboard
3) The CPA Journal: http://www.nysscpa.org/cpaj.htm
4) AICPA Codification of Statements on Auditing Standards:
http://www.aicpa.org/members/div/auditstd/Authoritative_AIC
PA_Audit_and_Attest_Standards.htm
5) PCAOB Auditing Standards
http://www.pcaob.org
Daily readings of The Wall Street Journal and subscription to a
business periodical, e.g. Journal of Accountancy, Fortune or
Business Week.
II.
COURSE OBJECTIVES AND DESCRIPTION
Audit issues will be discussed from the perspectives of management and other users of the financial statements, as
well as, the external auditor. I have five broad objectives for this course:
i)
To instill a desire for you to become true professionals, able to appreciate the value of integrity and
ethical behavior, and the critical role of auditing in our economy.
ii)
To teach you how to think effectively and apply critical thinking to real-world problems involving
risk.
iii)
To prepare you for professional careers in either corporate accounting, internal audit, business
assurance, or information systems by understanding the environment in which the auditor operates in
by presenting the types of conditions, events and confrontations that will be encountered.
iv)
To continue to develop your effective communication skills. These skills are essential to your
professional development.
v)
Finally, I hope to share my enthusiasm and excitement for the audit profession. Our profession is
continually evolving and developing. Our training allows us to make career choices that we may
never have dreamed. The learning never stops, nor does the opportunities.
1
III.
PERFORMANCE EVALUATION
Your overall grade in this course will be determined by your performance in the following:
Component
Class attendance and participation
Homework assignments (individual)
Homework assignments (group)
Midterm
ACL project
Final Exam
Total
Points
75
75
75
80
20
125
450
Your total points will be converted into a letter grade based on a single curve applied to both of my ACCT 473
sections and will meet the grading guidelines of the School of Accounting, which currently require the class
average to approximate 3.15 (see attached). Please note that the grade of W is allowed only if a student
withdraws by approved date (Monday, April 10th). The grade of IN is reserved for highly unusual cases where
the student is unable to complete a single item of the course requirements. See the attached policies for further
information.
After each test, homework assignment or case is returned, you will have one week to challenge your grade in
writing. After this time, grades on homework and cases become final.
The professor reserves the right to make an adjustment when needed to ascertain a more “fair” distribution of
grades based on perceived effort of the class relative to the results obtained.
Class preparation, attendance and participation:
Advanced preparation for class is expected. This includes reading assigned material, and completing assigned
cases and problems. Much of class time will involve you contributing to discussion in class. Therefore it is
expected that you will attend every class and scheduled labs. I will distribute a daily attendance sheet for students
present. You are to indicate your attendance and, if you are late, you are to note this on the sheet. I expect that
you arrive on time to class and remain in class until the session is complete. Each student will be allowed one
absence or being tardy two times. Subsequent absences or being tardy will result in 0 points being assigned for
the day. It is your responsibility to sign the sheet each session. This will account for 45 points. Note that it is
an honor code violation to sign for another individual in the class or to sign-in and leave.
You will have an opportunity to earn 30 additional points for active participation in the classroom. These points
will be awarded based on attentiveness and actively engaging in discussion when called upon by the instructor or
volunteering discussion during instructor-led or group-led presentations. You can earn 3 points per class for this.
Since this class is leading to a professional degree, I fully expect you to behave professionally. I reserve the right
to deduct 1 to 3 points (depending on the severity) for any of the following: failure to be prepared for class,
monopolizing class time, sleeping in class, disrupting class with chatter between classmates, reading the
newspaper, studying for other courses, or making impolite or insensitive comments. Be warned that I will
not embarrass you in class; however, I am quite observant and will note any of these actions and deduct points
when necessary. I do not expect you to be perfect, but if your behavior is obvious enough to distract me, then it is
obvious enough to distract others. Also, you have the right to come to my office and discuss any reservations that
you have with my conduct of the class or preparation. A successful classroom environment is the responsibility
of both the students and the instructor.
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Homework Assignments:
For each class I have assigned various cases/problems/discussion questions to help you prepare for class
discussion. Please see the schedule that is included in the syllabus for the homework assignments. Some of these
assignments are individual and some are group assignments. Answers to all (individual and group) homework
assignments must be typed and you should be prepared to turn them in at the beginning of class. You should
make two copies of the assignments; one to turn in, and one for class discussion. If you are going to be absent
you must email me your homework by 10:00 am the day it is due. No late homework will be accepted.
Homework assignments will be graded for depth of thought, completeness, and quality of writing. You will be
given a percentage grade for each assignment. The average of the percentages will be multiplied by the total
points allocated to arrive at the number of points you will receive.
For the individual assignments I encourage you to discuss the readings and assignments with other students in
your class. There are two important exceptions to my encouragement of discussion of the materials and
assignments with others. One is that the answers to written assignments should be your own; answers that are
exactly the same will result in grades of -0- for all parties involved and will be deemed a violation of the
honor code. The second exception is that discussion that occurs when one of the parties has already attended an
in-class discussion of the material is not acceptable. Because of the grading importance placed on participation
and written assignments, I consider such discussions to be a violation of the honor code.
Group Assignments:
You may select your own groups on the first day of class and let me know by the second class who will be in your
group. Groups will be limited to a maximum of three students (some groups may be two students). For these
assignments I expect you to work as a team in preparing your homework. All members will receive the same
grade for these assignments. I will randomly select groups to present the answers to the homework assigned.
For each assignment you should be prepared to present your answers to the class. You can designate a
representative or you could present your answer as a group. Your group will be given a percentage grade for each
assignment. The average of the percentages will be multiplied by the total points allocated to arrive at the number
of points your will receive.
You will also work together on an ACL project which will be handed out in class.
For the group homework assignments all work is to be performed exclusively by the members of the group and
all group members must contribute their fair share to each assignment. Discussions with any student who is not
a member of your group would be deemed a violation of the honor code.
Examinations:
The midterm and final examinations account for a little over 44% of the course grade. The content of these exams
will be drawn from the required course readings and class discussions. The exams will be a mix of objective and
subjective components – details about the format will be announced in classes near the exam date.
Make-Up Exam Policy:
Exams missed without the prior approval of your professor or without adequate documentation of the reason for
missing the exam will result in a recorded grade of zero for the missed exam. Only in the case of a welldocumented true emergency should an exam be missed. Please be sure to get your professor’s prior approval. If
the mid-term exam is missed with prior agreement and adequate documentation, the grade obtained on the final
exam will automatically be substituted for the missed exam as well. All students must take the final exam as
scheduled unless an incomplete contract has previously been approved according to School of Accounting
regulations (see School of Accounting standards at the end of this syllabus).
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IV.
SKILL ENHANCEMENT ACTIVITIES
Throughout this course students will be challenged to develop skills that are critical to professional success. The
principal skills and related activities that will be employed in pursuit of your development during the semester
include:
Communication Skills:
 Oral communication skills will be enhanced by active participation in class discussion. I will lead discussions
intended to simulate issues facing the accounting profession. Your participation will be expected in
addressing and resolving many of the issues raised. You will be evaluated on the quality of your oral
communication via the points allocated to class participation. Oral communication skills will also be
enhanced and evaluated via the group presentations.
 Written communication skills will be enhanced and evaluated via the written homework assignments, group
project, position papers and examinations. Each of these various assignments have a portion of the grade
allocated to the quality of your written communication.
Research Skills:
 Homework assignments will require extensive use of the professional standards, internet and database
research.
Analytical Skills:
 Many of the cases assigned may not have “correct” or “right” answers. Not all the issues addressed have been
resolved in the professional standards. You will be required to analyze and develop “reasonable” or
“acceptable” solutions. The quality of your reasoning will form part of the grade assign.
 Several of the homework assignments will require you to analyze and evaluate financial and non-financial
information and use that information to perform risk assessment and audit planning.
 The exams will require you to analyze different situations and determine appropriate solutions.
Ethics:
 Homework assignments and class discussions will discuss ethical issues faced by today’s auditors and
corporate executives.
Information Technology:
 Homework assignments and the ACL project will be prepared using word-processing and/or electronic
spreadsheets and audit software. These activities will require extensive use of the internet and research
databases.
V.
ACADEMIC INTEGRITY
Ethics and values are very important in accounting and the world of business, nonprofit and government
organizations. We will consider ethical issues in accounting throughout this semester. Ethics and values are also
important in education. Professors will assume, unless there is evidence to the contrary, that you are an ethical
student. If there is a situation that results in an academic integrity violation, the Leventhal School of Accounting
Student Honor Code will be followed.
VI.
LEVENTHAL SCHOOL OF ACCOUNTING GRADING AND ACADEMIC STANDARDS
A summary of the most important grading and academic standards of the School of Accounting is attached to the
end of this syllabus. These pages contain information on grading matters such as the rules for “incompletes” and
information about the grade requirements for accounting majors.
VII.
RETENTION OF GRADED PAPERS
I will retain all graded material that has not been returned to the student for one semester. After that time, I will
discard all materials. Returned paperwork, unclaimed by a student, will be discarded after two weeks.
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VIII. DSP
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 as early in the semester as possible. DSP is
located in STU 301 and is open 8:30 a.m. – 5:00 p.m., Monday through Friday. The phone number for DSP is
(213) 740-0776.
IX.
BOOKS TO BRING TO CLASS
You should bring your custom published textbook, and copies of documents posted to blackboard to class.
To reinforce class discussions we will be doing additional problems included in your assigned readings.
X.
DISCLAIMER
The instructor reserves the right to change the course schedule and assignments if circumstances dictate. Any
changes will be announced in class and posted on blackboard and will allow plenty of lead-time.
XI.
INDIVIDUAL CLASS TOPICS AND ASSIGNMENTS
The detailed schedule on the following pages provides you with a list of the topics, reading assignments, and
written assignments for each day. Please note that you are required to complete the reading assignments and
case/other assignments as preparation for the class they are assigned for.
XII.
CLOSING REMARKS
The primary goal of this course is long-term (to prepare you for a successful career). Students should not
approach the course material as if the only goal is short-term success (grades on tests). As seniors, your GPAs are
not severely affected by grades +/- one letter grade of your cumulative GPA, so break loose from the “grade”
mentality and shift your focus to the “value-added” mentality (i.e., evaluate the effectiveness of a course based on
how much you have learned).
A significant factor in your successful completion of this course is staying current with the material. It is difficult
to meet the objectives by letting your preparation “slip” and/or by “cramming” for an exam. The assigned
problems, readings, and cases are designed to encourage you to pace yourself by regularly preparing for class and
staying current with the material.
I encourage you to take advantage of office hours when you need help with materials or have other issues to
discuss. These hours are yours and you may discuss any issues that you like; however, those needing help on
course work will receive top priority. If you come for help in the course, you are expected to be prepared. That is,
you should have attended class, read the materials, and made a valid effort to understand the material or work on
the assignment in question.
Best of luck this remainder of this semester and in your careers!!!!!!!!!!!!!!!!!!
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Class
#
Day/Date/
Time
Topic
Reading Assignments
Homework Assignments
Introduction and Review
1
Tuesday
3/07/06
Introduction and Review
Review materials from ACCT 373
None
The CPA Journal:
“Reclaiming the Profession’s Heritage:
Remarks by Arthur Levitt, Jr.,” February
2004
AICPA Auditing Standards:
AU 110
MODULE #1: Planning the Audit
2
Thursday
3/09/06
An Overview of the
Integrated Audit
Blackboard: Course Documents:
Chapter 4: An Overview of the
Integrated Audit
Handed out in Class #1:
“Acceptance and Continuance of Clients
and Engagements,” AICPA Practice
Alert 2003-03
AICPA Auditing Standards:
AU 312.12-.33, AU316.01-.53,
AU316.85
Lab
3
4
Lab
5
Complete:
Blackboard: Assignments:
Case: Buck’s Paint and
Body Shops: Questions 1
through 3 (individual
assignment)
Case: Did Stumble & Fall
Miss the Key Fraud Risks
at Trojan Medical:
Question 1 (individual
assignment)
Friday
3/10/06
Tuesday
3/14/06
Thursday
3/16/06
Friday
3/17/06
Tuesday
3/21/06
No Lab
Knowledge Acquisition of
Current Conditions I:
Understanding the
Client’s Industry and
Business: Strategic
Analysis
Blackboard: Course Documents:
Chapter 5: Understanding the Client’s
Industry and Business: Strategic
Analysis
Complete:
Blackboard: Course
Documents:
Chapter 5: problems 10
and 11 (group assignment)
Thursday
3/23/06
Knowledge Acquisition of
Current Conditions II:
Understanding the
Client’s Business:
Strategic Risk
Management
Custom Published Text:
Chapter 6: Understanding the Client’s
Business: Strategic Risk Management
Complete
Blackboard: Assignments:
Assessment of Gap Inc.’s
Audit Committee (group
assignment)
Friday
3/24/06
Tuesday
3/28/06
Spring Break-No Classes
Have fun!!! I will be
skiing; pray I don’t hurt
myself
AICPA Auditing Standards:
AU 319.01-.55 and Appendix AU
319.110
No Lab
Knowledge Acquisition of
Current Conditions Part
III: Process Analysis and
Risk Assessment
Blackboard: Course Documents:
Chapter 7: Process Analysis and Risk
Assessment
Complete:
Prepare a Process Map for
the “Site Selection & Store
Design” process for Gap,
Inc. (group assignment)
6
Class
#
6
Day/Date/
Time
Thursday
3/30/06
Topic
Knowledge Acquisition of
Current Conditions Part
IV: Evaluating Internal
Control over the Financial
Reporting Process
Reading Assignments
Blackboard: Course Documents
Chapter 8: Evaluating Internal Control
over the Financial Reporting Process;
including Appendix A
Homework Assignments
Complete:
Blackboard Assignment:
Class #6: Discussion
questions (individual
assignment)
AICPA Auditing Standards:
AU 319.25-.28, AU 319.56-.109
Lab
7
Friday
3/31/06
Tuesday
4/04/06
No Lab
Knowledge Acquisition of
Current Conditions Part
V: Business Measurement
and Analytical Evidence
Custom Published Text:
Chapter 9: Business Measurement and
Analytical Evidence
Case 1.8 Crazy Eddie
Complete:
Blackboard Assignment:
Class #7: Case 1.8 Crazy
Eddie Questions 1 through
4. (group assignment)
Blackboard Course Documents:
The Use of Analytical Procedures
CPA Journal:
“Interviewing as an Audit Tool,”
February 2005
8
Thursday
4/06/08
Planning the Audit of
Financial Statement
Assertions
AICPA Auditing Standards:
AU 329.01-.08
Custom Published Text:
Chapter 10: Planning the Audit of
Financial Statement Assertions
Blackboard Course Documents: Class #7
The Use of Analytical Procedures
Complete:
Custom Published Text:
Case 10-1: Rubba-DubDub Tub and Commode
Company questions 1
through 6 (individual
assignment)
Handouts Class #1:
Financial Reporting Assertions
AICPA Auditing Standards:
AU 312, AUI 312, AU 326,
AU 329.09-.21
Lab
4/07/06
No Lab
MODULE #3: Conducting the Audit
9
Tuesday
4/11/06
Auditing Marketing, Sales
and Distribution
Management Processes:
Part I
Custom Published Text:
Chapter 11: Auditing Marketing, Sales
and Distribution Management
(Overview of Objectives and Activities
Tests of Controls) pp. 359-384
Complete:
Custom Published Text:
Chapter 16: problem 5, p.
677 (individual
assignment)
Chapter 16: Statistical Evidence in
Auditing (Introduction and Attribute
Sampling) pp. 641-664
Blackboard Assignments:
Class #9: Case: YPS
Company (individual
assignment)
CPA Journal:
“How Reliable is Haphazard Sampling?”
January 2006
AICPA Auditing Standards:
AU 350
7
Class
#
10
Day/Date/
Time
Thursday
4/13/06
Topic
Reading Assignments
Auditing Marketing, Sales
and Distribution
Management Processes:
Part II
Custom Published Text:
Chapter 11: Planning Tests of Financial
Statement Assertions: Revenue and
Accounts Receivable, pp. 384-391 (end
with confirmation section)
Chapter 16: Tests of Account Balance
Details: Dollar Unit Sampling, pp. 664674; Judgmental Approaches to
Sampling, pp. 674-675
Blackboard Course Documents: Class #7
The Use of Analytical Procedures
AICPA Website:
Practice Alert 2003-1 Audit
Confirmations
(http://aicpa.org/download/secps/pralert_
03_01.pdf)
Homework Assignments
Complete:
Blackboard Assignments:
Class #10: Case: USC
Football Revenues: Using
Analytical Procedures as
Substantive Tests:
Questions 1 through 4
(individual assignment)
Case Handed out in class:
Case 04-1 Total Computer,
Inc.-Accounts Receivableanswer the two questions
related to this part of the
case (individual
assignment)
AICPA Auditing Standards:
AU 316.41, AU 316.68-.78,
AU 330, AU 350
Lab
Friday
4/14/06
2:00-3:50pm
11
Tuesday
4/18/06
Midterm on material
covered in classes 2
through 8
Location: THH 102
Auditing Marketing, Sales
and Distribution
Management Processes:
Part III
Custom Published Text:
Chapter 11: Planning Tests of Financial
Statement Assertions: Revenue and
Accounts Receivable, pp. 391-392
(begin with “Cut-off tests”); Appendix:
An Overview of Workpaper
Documentation Techniques, pp. 400-405
Case 2.3 Happiness Express, Inc.
AICPA Auditing Standards:
AU 342
PCAOB Auditing Standards:
Auditing Standard No. 3: Audit
Documentation
Complete:
Custom Published Text:
Case 2.3 Happiness
Express, Inc. questions 1
through 3 (group
assignment)
Research Assignment:
Visit the SEC’s website
(www.sec.gov) and
identify a company that has
been recently cited for
revenue recognition
problems. Prepare a one
page memo summarizing
the revenue recognition
issues for the company.
(individual assignment)
8
Class
#
12
Day/Date/
Time
Thursday
4/20/06
Topic
Auditing Supply Chain
and Production
Management Processes
Reading Assignments
Homework Assignments
Custom Published Text:
Chapter 12: Auditing Supply Chain and
Production Management Processes
Complete:
Custom Published Text:
Case 2.6 CBI Holding
Company, Inc. Questions 1
through 5 (group
assignment)
Case 1.8 Crazy Eddie, Inc.-familiarize
yourselves with this case as I will be
asking questions in class related to it.
AICPA Auditing Standards:
AU 331
Hand out ACL case
Lab
Friday
4/21/06
2:00-3:50pm
13
Tuesday
4/25/06
14
Thursday
4/27/06
Strategic Analysis and
Process Analysis in
Practice-Guest Speaker
John Owens Audit
Partner KPMG
Location THH 102
Completing the Audit Part
I
Completing the Audit Part
II
 Review for Final Exam
Custom Published Text:
Chapter 14: Completing the Audit and
Reporting, pp. 546-558 (read up to
Client Negotiation…); Appendix:
Identifying Going Concern Problems,
pp. 440-441(read up to Statistical
Measures)
AICPA Auditing Standards:
AU 333, AU 337, AU 341, AU 560,
AU 561
Custom Published Text:
Chapter 14: Completing the Audit and
Reporting, pp. 558-578 (Begin with
Client Negotiation…)
AICPA Auditing Standards:
AU 329.23, AU 380
Monday
5/01/06
Tuesday
5/02/06
Tuesday
5/09/06
Wednesday
5/10/06
Extended office hours:
10:00am—3:00pm
Extended office hours:
9:00 am—3:00 pm
Final Exam:
Comprehensive
Section #14135
11:00am-1:00pm
Location: TBA
Final Exam:
Comprehensive
Section #14136
2:00-4:00pm
Location: TBA
Case Handed out in class:
Case 04-1 Total Computer,
Inc.-Inventory
Reserves-answer the two
questions related to this
part of the case (individual
assignment
Complete:
Blackboard Assignments:
Class #13: Case and
Discussion questions
(individual assignment)
Complete:
Blackboard Assignments:
Class #14: Case and
Discussion questions
(individual assignment)
ACL case due (group
assignment)
Review class notes
Review class notes
9