AUDITING
Program
Bachelor in Management
Instructor
Associate Professor William H. Coyle Ph.D. C.P.A.
Course status Elective
Concentration International Management, Marketing, Financial Management, Public Administration
Year
4th year
Term
Fall – 2011
Workload
3 ECTS, 45 hours of classes
Prerequisites Financial accounting, Managerial accounting, Financial analysis, Business Law
General Information:
This will be the second year where Babson and GSOM (the Graduate School of
Management of St. Petersburg State University, Russia) will simultaneously have
Auditing taught to their respective students. We will be accomplishing this through the
help of our respective technology professionals and the video-conferencing technologies
present at both universities. This cooperation between educational institutions is
illustrative of how both universities are doing all they can to enhance the educational
experience of their students. This will be the first year that all Babson Auditing students
will be part of this unique course format. Last year, we tested this format on a handful of
Babson students and it worked well and was assessed well by both the Babson students
who participated and the GSOM students.
The class will work in the following way. Professor Coyle will be in St.
Petersburg for the first seven classes of the course. Undergraduate Dean Hanno of Babson
will teach the eighth class and then Prof. Coyle will teach the remaining classes of the
semester from Babson. The technology allows the Babson and GSOM students to see
each other and speak to each other so even though the students are located 8/9 time zones
away, they will be together in class.
Professor’s Background Information:
Professor Bill Coyle will be the primary professor for the class. Professor Coyle
graduated from the University of Notre Dame and majored in accounting. He took a job
with the Boston office of what was then known as Price Waterhouse and worked there for
four years, including a six month engagement in Saudi Arabia where he was part of the
Price Waterhouse launch team to establish a firm presence in Saudi Arabia. While at
Price Waterhouse he attained his Certified Public Accountant (CPA) credentials from the
Commonwealth of Massachusetts which he still maintains. He attained his Ph.D. from
Texas A&M University and took a position of Assistant Professor at Babson in the fall
1992 semester. Soon thereafter he travelled to Russia in January 1993 as part of Babson’s
first MBA off-shore elective to St. Petersburg and Moscow, Russia. Since 1995 Prof.
Coyle has been the Director of Russian Programs at Babson, has led or co-led 24
undergraduate or graduate off-shore electives in Russia and has been a Visiting Professor
at GSOM. With this course this marks the fourth consecutive year that Prof. Coyle has
taught a course at GSOM.
Course Logistics:
Both Babson and GSOM are innovative institutions. This course is just another
way that both institutions cooperate with each other and provide a unique educational
experience for its students. This course represents an excellent opportunity for Babson
and GSOM students to learn about each other’s countries and learn about each other. This
course is first an auditing course but it is also an opportunity to have a rich international
experience without leaving home. The course will force interactions between the Babson
and GSOM students, but the hope is that the individuals in each group will interact with
each other without the direction of the course or the professor. There is much students can
learn from each other and that knowledge goes well beyond auditing. It is up to the
students to take advantage of this opportunity.
The class days and times are driven by the Babson schedule so unfortunately for
our GSOM colleagues, they have to adjust as needed.
Classroom: At Babson, Olin 220; at GSOM, to be determined but likely in the
Dekabristov Building on the fifth floor
Class Days: Every Tuesday and Thursday starting on September 1 until December
8 except for Tuesday October 11 (Columbus Day holiday in the USA and November 22
and 24 (Thanksgiving Day holiday in the USA). No class will be held on October 11,
November 22 and November 24
Class Time: For Babson, 9:45 to 11:20 Tuesdays and Thursday. For GSOM it gets
complicated because Russia no longer changes its clocks in the fall and spring. From the
beginning of class until November 6, St. Petersburg is 8 hours ahead of the Babson
(eastern time zone in the USA). So class will be held from 17:45 to 19:20 for all classes
through Thursday November 3. For all classes starting on Tuesday November 8, class will
be held from 18:45 to 20:20 as St. Petersburg will then be 9 hours ahead of Babson.
Office Location at Babson: Luksic 306
Office Phone Number at Babson: extension 4366 or +1-781-239-4366 for GSOM
students
Office Hours: For Babson students there will be no office hours until I return from
Russia. Then office hours will be established. For GSOM students, the best thing to do is
email me
Email: coyle@babson.edu While in Russia for everyone, email is the best way to
communicate with me. Upon returning to the USA, this is still the best way for the
GSOM students to communicate with me. Just be aware of time zone differences. I have
an iphone and I receive emails on it wherever I am so I should always be in contact with
you if you need me.
Required Texts:
1. Auditing and Assurance Services: An Integrated Approach. Fourteenth
Edition, by Alvin A. Arens, Randal J. Elder and Mark S. Beasley. Prentice
Hall. 2012
2. Contemporary Auditing: Real Issues and Cases. Eighth Edition. Michael C.
Knapp. South-western Cengage Learning. 2011.
Supplemental Text:
1. CPA Review: Auditing and Attestation. Gleim and Hillison. Gleim
Publications Inc; 2011 Edition.
For the Babson students:
 We will go through most of the chapters in the Arens book and read most of the
cases in the Knapp book. So if you buy the books, you will get your money’s
worth.
 Not everyone needs one but you must have access to it for the exams. If you call
Gleim at 800-874-5346, tell them you want to buy this book and that you are a
Babson student, you can get it at a discounted price + shipping.
For the GSOM students:
 On reserve in the library there are copies of the 14th edition of the Arens book and
the 13th edition of the Arens book. There are differences between the two editions
and I will try to keep you informed of where those differences are.
 Also on reserve in the library are copies of the eighth edition of the Knapp book
and earlier editions as well. There were cases added and deleted between the 6th,
7th and 8th edition of the Knapp book. You need to be aware of these case
additions and deletions. I found last year there were enough copies to go around.
 There are copies of the 2011 and 2010 editions of the Gleim book on reserve in
the library. I will try to reconcile the sections for both editions so you will know
which questions you need to familiarize yourself with for the midterm and final
exam.
Course Objective:
This is a very focused senior-level or fourth-year level course. Financial auditing is the
process of rendering an opinion on a client’s financial statements. This course will teach
the responsibilities associated with being in the auditing profession, what an audit opinion
is, the risks associated with rendering that opinion, how an auditor plans and executes an
audit engagement, including the assessment of a client’s internal control structure and the
evidence gathered to support the assertions of management with respect to the account
balances within the financial statements. You will become familiar with generally
accepted auditing standards (GAAS), which are the guidelines by which an auditor
professionally conducts a financial audit. You will see the effects that the Sarbanes-Oxley
Act has had on the auditing profession. By the end of the course, you will have learned
the fundamental concepts, risks, and procedures needed to audit all of the major financial
statement areas within a typical audit. For the Babson students, a secondary objective is
that this course will prepare you to successfully complete the Auditing and Attestation
section of the CPA exam.
For the GSOM students, this course is focused on conducting an audit in the USA. This is
especially true for the Arens book. The Knapp book has international cases which makes
it less US-focused. However, you are not at a disadvantage learning Auditing in this way
because good auditing is done the way you will learn it in this course. The Big 4
international accounting firms (PricewaterhouseCoopers, KPMG, Ernst & Young and
Deloitte and Touche) all conduct their audits worldwide based on the principles and
procedures you will learn in this course.
Nature of the Course:
This course is the least quantitative accounting course offered in the accounting
curriculum. Auditing is more risk assessment, planning, and execution which requires
analytical skills but of a more subjective type. That does not mean that you will not need
the knowledge learned in other accounting courses. To audit accounts such as inventory,
leases, and pensions, an auditor must know how they are constructed. However auditors
do not prepare the financial statements; that is management’s task. It is the auditor’s
responsibility to gather enough evidence in order to conclude that the account balances as
presented by management are fairly stated in all material respects. The auditor must know
the nuances in determining an account balance so that the appropriate and sufficient
amount of evidence supporting the client’s balance is obtained.
Nature of the Auditing Profession:
By the end of 2001, Enron was just breaking heavily into the US news. At that time no
one, including me, would have expected the magnitude and effect of Enron, Worldcom,
and Global Crossing, to name a few companies with fraudulent financial statements. No
one would have expected the complete collapse of Arthur Andersen, at the time one of
the Big Five international accounting firms. No one would have thought about the
establishment of a Public Company Accounting Oversight Board in the US through an act
of Congress named Sarbanes-Oxley. Then in 2008 the financial markets, the banking
sector and the housing market simultaneously collapsed. In part this was due to opaque
and sometimes deceptive financial statements that did not adequately disclose the risks
being undertaken by especially the companies in the financial sector of the economy.
Madoff had financial reports that were supposedly examined by an auditor. The
profession is going through a turbulent time right now. If anything, it reinforces the
importance for honesty and transparency in the financial markets and the significant role
an auditor needs to play in order to promote an efficient capital market. The role of the
auditor is never more crucial than it is in today’s environment. I always said that auditing
was an exciting and crucial profession. In the past, students would not quite believe me.
Perhaps that is not the case anymore.
Course Conduct:
I expect you to be highly motivated. Therefore, my expectation level of your performance
is very high. The Babson students are seniors and the GSOM students are likely to be
fourth year students or graduate students and therefore you deserve to be treated as
professionals, but that also means you have the responsibility to act like professionals.
Also, I feel I owe it to you to conduct the class in such a way that is consistent with the
business environment that you will soon be dealing with every day. Expectations include,
but are not limited to the following:
 Preparation: I am assuming all of the Babson students intend to work for a public
accounting firm as an auditor or tax accountant and that you will take the CPA exam.
Many of the GSOM may follow the same career path in public accounting. Therefore,
since auditing is what many of you will do, and in the US, auditing is one-fourth of the
CPA exam, I will expect that you would have fully read and thought about the chapters
and cases assigned and that you are prepared to fully participate in class. This class
should be of the very highest priority.
 Class Attendance: I expect you to attend class. I understand you may have job
interviews and stuff happens, so when possible, inform me in advance by email
(coyle@babson.edu) in the event you will not be attending class. The Bbason students
may not appreciate the difficulty, time and distance some GSOM students have to
travel in order to get to class. I do and so I may be more lenient with the GSOM
students because they do not control the environment around them as much as the
Babson students do. Still, every effort should be made to get to class and get to class
on time.
 Arriving Late: Class will begin promptly as scheduled. In fact, most classes will start
with a quiz so you really need to be in class on time.
 Leaving Class: Only in rare circumstances should it be necessary to leave class. In a
business meeting setting, you will not have such an opportunity. This is more of a
cultural issue for Babson students than St. Petersburg State students.
 Another cultural difference that will become apparent. GSOM students and Russian
students in general do not bring food and liquids into class. Given what Babson
students will do, GSOM students may think Babson students live in a desert. It is
culturally OK in the US for students to bring food and drink into the classroom. So
perhaps more for the Babson students, for the benefit of students that will follow you
into the classroom, leave the seating area neat and dispose of any trash.
 For the Babson students, in the event a university-excused absence is needed, it is the
sole responsibility of the student to secure such an excuse.
Grading:
Grading Components are as follows:
Quizzes
Group Projects
Audit Case Write-ups
Midterm Exam
Final Exam
Total
250 points
150 points
150 points
200 points
250 points
1,000 points
Expect that there will be a quiz given every day. Quizzes will be graded on a 10 point
scale. Quizzes will be worth a total of 250 points, but that does not mean there will be 25
quizzes. Point totals will be based on the overall percentage attained on those quizzes
given in class during the course of the semester. For example, if 17 quizzes are taken and
a student scores 136 out of 170 (or 80%), then they will receive 200 points (80% of 250)
for grading purposes. Material on the quizzes will be from the Arens book chapters and
Knapp cases assigned for that day. The questions on the quizzes will be on major issues
raised in that day’s readings, such that a reasonably careful reading of that day’s material
should allow for excellent results on the quizzes. All quizzes count, therefore, you do not
get to drop any. In the event of an excused absence, your average grade on the quizzes
you took during the semester will be assumed to be your score for any missed quizzes.
During the semester there will be two group projects that need to be completed. The
groups will consist of a mixture of Babson and GSOM students. Prof. Coyle will
determine who will be in what group. The group exercises will allow an opportunity for
the Babson and GSOM students to work together and learn from each other. You may
need to work through language problems, cultural differences and certainly time
differences. But everyone will face these issues when they are working. You live in a very
small world. I guarantee you will be working with people from other countries so these
assignments will help you prepare for that.
Throughout the semester, there will be case readings from the Knapp casebook. All of the
cases have questions at the end of the case. Everyone is expected to be prepared to discuss
those questions in class, but two times during the semester, you will do a formal write-up
and analysis of a case. Each write-up will be worth 75 points but will be graded on a 100
point scale. Because some cases are very short, not all cases are eligible for write-ups. In
the Course Outline section of the syllabus, all cases noted with a (*) at the end of the case
could be used for write-up purposes. There are many cases with a (*) next to it, so there
are plenty of choices available and note that most, although not all class days have an
opportunity to hand in a case write-up. The length of the write-up will depend on the
nature and number of the questions asked. Grading will be based not only on the content
of the answers, but for the Babson students, also based on how well written it is.
Allowances will be given to the GSOM students as English is their second language. The
write-ups are to be done on an individual basis. That means no discussion or consultation
with anyone in the class other than the professor is allowed. I will leave it to you to decide
which cases you wish to write-up. In this way, I am trying to make your life a little easier,
as you can look at your calendar and determine when you will have more time to do these
write-ups. I leave it to you to manage your time appropriately. Case write-ups are due by
the beginning of the class in which they will be discussed. Please email me the case writeups using Microsoft Word.
To be more specific regarding what I expect of the write-ups, the case write-ups should be
written with clearly distinguishable sections. Every case write-up should start with a Case
Summary section that within a paragraph or two, should state the company involved, what
it does, who the major players are in the case, and most importantly, what the issues are in
the case. Following the Case Summary section should be a separate section addressing
each individual question at the end of the case. Each question should be answered
separately. In answering these questions, you are highly encouraged to cite relevant
material from the book, including Statements of Auditing Standards (SAS). The key here
is that if a question asks for an opinion or a conclusion on your part, you should be able to
cite relevant support for your position. The final section for all case write-ups should be a
one paragraph Case Conclusion section where you should state whether you agree or
disagree with how the case was actually resolved, and why.
The midterm exam will cover Chapters 1-13, and the final will cover Chapters 14-24. The
midterm exam is worth 200 points and the final is worth 250 points. The final is not
explicitly cumulative, in the sense that it will not contain a question specifically
concerning the first 13 chapters. However, the final is cumulative in the sense that an
understanding of the first 13 chapters is essential in order to do well in the last 11
chapters. For all students the midterm exam will be held in class. The final exam will be
given based on what Babson and the GSOM registrar/administration tell me. I will inform
you as soon as I learn what Babson and GSOM decide regarding the timing of the final
exam. Both the midterm and the final will include multiple choice questions taken word
for word from the Gleim and Hillison CPA Review book. For the Babson students, I
believe that you should get used to the type and style of questions you will see on the
CPA exam. For the GSOM students, although it is likely you will not be taking the CPA
exam, the CPA multiple choice questions do a very good job of testing your auditing
knowledge. In addition to CPA questions, exams will contain problems and essays
written by me, based on material discussed in class.
Undergraduate Learning Goals:
This section is specifically addressed to the Babson students but the GSOM students may
find it interesting. Babson has undergraduate learning goals, which are
areas/concepts/skills that we at Babson believe should be an important component to a
Babson student’s education. This course will promote your development in all seven
Babson undergraduate learning goals:
 Rhetoric: through class participation and written assignments
 Quantitative Analysis: although less so than in intermediate or advanced accounting
classes, still in auditing you need to be able to work with amounts, accounts, financial
statements, and the relationships between and among them.
 Entrepreneurship and Creativity: particularly in creativity, the way an auditor decides
what evidence and how much evidence needs to be gathered to support a management
assertion or account balance.
 Ethics and Social Responsibility: chapter four in the text is all about professional
ethics and there is an ethical code within the AICPA (American Institute of Certified
Public Accountants). Furthermore, auditors have a high social responsibility as the
independent monitor on behalf of shareholders, creditors, suppliers, customers, etc.
Ethics and Social Responsibility is extremely important to the profession. Certainly
the past few years have taught us that.
 Global and Multicultural Perspectives: this one should be obvious given the nature of
the course. I will also rely on my travels and experiences, as we will discuss
differences in the auditing environments in different countries. More and more,
auditors are involved with multi-national clients, so understanding those different
business and social environments is important.


Leadership and Teamwork: the teamwork aspect in this course will be your crosscountry, cross-cultural group assignments. As auditors you work in a team, and your
ability to work with others is crucial to your success in the profession.
Critical and Integrative Thinking: You will have to use your knowledge from all your
accounting classes and from most of your business classes as decisions made in other
functional areas, such as marketing, finance, operations and organizational behaviour
all are reflected on the financial statements. This then affects the risks associated with
an audit. Based on the nature of the client and the environment in which it operates,
an auditor must critically evaluate how they will obtain enough assurance so as to
render an opinion on the financial statements.
CPA Eligible:
I am assuming that all of the Babson students intend to take the CPA exam. Therefore
you need to consider in which state do you intend to work, what the educational
requirements are in that state to make you eligible to sit for the CPA exam, and finally,
how do you intend to meet those educational requirements? I am here to help you answer
those questions, or at least the last two parts of that question. It is probably a good idea
for the Babson students to meet me fairly soon after I return from Russia or if you prefer,
Professor Joanne Williams early on in the semester so I or Prof. Williams can discuss
how you can get CPA exam eligible. For those interested in the Babson’s MSA Program,
I am one of the faculty teaching in the MSA program, and along with the MSA Director,
Professor Joanne Williams, we are a good resource to use in that regard. However, please
do not feel that you have to get an MSA, especially if you do not intend to practice in a
150 hour state. I will give you advice on non-MSA ways to make you CPA exam eligible
as well. I believe my role is to give you all the alternatives I can think of and then leave it
to you to decide what path to take.
Accommodations:
Any Babson student who feels he or she may need an accommodation based on the
impact of a disability should contact me privately by email and in a timely fashion to
discuss your specific needs. Students must also contact the Manager of Disability
Services at 781-239-4508 or in Hollister Hall to coordinate reasonable academic
accommodations.
Course Outline:
Take the following outline as my vision of what we will be doing this semester. Note that
only those cases which are followed by a (*) are eligible for a case write-up. (#) cases do
not appear in the 6th Edition of the casebook. Case numbers refer to the 8th edition.
CLASS
TEXTBOOK CHAPTER
AUDIT CASE ASSIGNMENT
Sept 1
Introduction
Sept 6
Chapter 1
Case 1.1 Enron Corporation (*)
Sept 8
Chapter 2
Case 4.3 Suzette Washington
Case 6.1 Leigh Ann Walker
Sept 13
Chapter 3
Case 5.6 American Fuel and Supply (*)
Sept 15
Chapter 4
Case 4.2 F&C International, Inc. (*)
Case 5.5 Koger Properties, Inc.
Sept 20
Chapter 5
Case 3.4 Triton Energy, Ltd. (*)
Case 7.7 Fred Stern & Company (*)
Sept 22
Chapter 6
Case 7.8 First Securities Co. Chicago (*)
Case 6.4 Tommy O’Connell
Case 6.7 Hamilton Wong, In-Charge Acct
Sept 27
Chapter 7
Case 1.7 Lincoln S&L Association (*)
Case 6.2 Bill DeBurger, In-Charge Acct.
Sept 29
Chapter 8
Case 1.5 The Leslie Fay Companies (*)
Oct 4
Chapter 9
Case 8.1 Livent, Inc. (*)
Case 1.2 Just for FEET, Inc. (*) (#)
Oct 6
Chapter 10
Case 1.11 New Century Fin’l Corp (*) (#)
Oct 13
Chapter 11
Case 1.9 ZZZZ Best Company, Inc. (*)
Oct 18
Chapter 12
Case 1.6 NextCard, Inc (*)
Oct 20
Chapter 13
Case 1.12 Madoff Securities (*) (#)
Oct 25
Midterm Exam on Chapters 1-13
Oct 27
Chapter 14
Case 1.3 Jamaica Water Properties (*)
Nov 1
Chapter 15
Case 2.3 Happiness Express, Inc. (*)
Nov 3
Chapter 16
Case 7.1 Ligand Pharmaceuticals (*) (#)
Nov 8
Chapter 17
Case 2.2 Golden Bear Golf, Inc. (*)
Nov 10
Chapter 18
Case 2.6 CBI Holding Company, Inc. (*) (#)
Nov 15
Chapter 19
Case 8.5 Zuan Yan (*) (#)
Nov 17
Chapter 20
Case 3.1 The Trolley Dodgers
Case 3.3 United Way of America (#)
Case 8.15 Tae Kwang Vina (#)
Nov 18-27
Thanksgiving Break (no class)
Nov 29
Chapter 21
Case 1.8 Crazy Eddie, Inc. (*)
Dec 1
Chapter 22
Case 6.3 David Myers, Controller
Case 8.7 Australian Wheat Board (*) (#)
Dec 6
Chapter 23
Case 2.4 CapitalBanc Corporation
Case 3.2 Howard Street Jewelers, Inc
Case 8.9 Tata Finance Limited (#)
Dec 8
Chapter 24
Case 8.8 OAO Gazprom (*)
????
Final Exam