Smackey Dog Foods, Inc
Smackey Dog Foods, a privately owned company, audit will still be under the influence of the Securities Exchange Commission (SEC). Though the rules are enforceable for publicly traded companies, they can also be applied to non-public companies the same. As is when auditing public companies, auditors must establish their independence. Independence is one of six principles established by the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct. This particular ethical violation can come into question because of Pete’s, Audit Manager, and best friend Alan’s prior relationship with owner Kim and the bank loan officer. Other principles such as Integrity and Objectivity (Rule 102) also come into question due to these relationships. Even if Independence is determined, the auditor shall remain free of conflicts of interest also. The fact that Pete’s best friend Alan was married to owner Kim and he also has a friendship with the loan officer should be disclosed. Also, the fact that Pete is discussing the audit with Alan causes for some skepticism.
To start the audit, Pete and his team must first get an understanding of Smackey and their industry to conduct this audit. Though Keller CPA’s have never audited a dog food company, maybe they have audit companies similar to Smackey like a food manufacturer and this will at least give them some insight on what to look for. Also, they should look at the industry to have some comparison when they began to audit the financials. Assessing Smackey’s business risk will be the next step and the issue they are having with returned dog food could really threaten their risk factor. This factor should call for the auditors to look for misstatements in their sales numbers. To better understand this risk, Pete and his team need to perform some analytical procedures comparing Smackey’s performance with the industry to further support its initial...