ACCT 546 – Auditing and Assurance Services

Syllabus – Fall 2015Section 14207D 9:30 – 10:50 TuTh (JKP 102)Section 14206D 11:00 – 12:20 TuTh (JKP 102)

Professor: Sarah Bonner, Ernst & Young ProfessorOffice: HOH 622Office Phone: 213/740-5025Office Hours: 1:00 – 3:00 TuTh; 12:00 – 1:00 Mon.; 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 auditing services by accountants. 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 auditing for 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 and individual auditors’ experiences (anecdotal evidence). In class, we will cover these issues, 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 we will discuss the research evidence that suggests that there are some costs as well as benefits. Overall, then, our class discussions will center on both the practical need to comply with standards, etc., but also on what research (empirical) evidence tells us so that you can be a better informed practitioner of auditing as well as a better informed participant in the profession.

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 the 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 Outcomes

The overall goal of this course, as mentioned above is to introduce you to 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 and faster 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 the midterms, 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. However, if on a particular day, you don’t wish to be queried, please notify me by email prior to class.

Required Materials, Readings, and Other Tools

The following texts are 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. YOU MUST PURCHASE THIS TEXT. FEEL FREE TO BUY A USED VERSION.

Beasley, J.S., Buckless, F.A., Glover, S.M., and Prawitt, D.F., Auditing Cases: An Interactive Learning Approach (6th edition). Pearson Education, 105. I WILL BE PROVIDING YOU WITH A COPY OF THIS BOOK FOR USE DURING THE CLASS. YOU WILL RETURN THE COPY TO ME AT THE END OF THE TERM.

All other materials, such as auditing standards and supplemental articles, 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.

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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. We adhere to 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. For elective courses, the class average is usually higher--approximating 3.5, which is between a B+ and an A-. 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.

The 1000 points for the course are divided as follows:

Component PointsMidterm exam 1Midterm exam 2Final exam (NOT CUMULATIVE)4 Cases (in total)Participation

220 (22%)260 (26%)220 (22%)200 (20%)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 midterm, which will be held on Tuesday, September 22 (in class), will cover the material presented from August 25 through September 17. The second midterm, which will be held on Thursday, October 29 (in class), will cover the material presented from September 24 through October 27. The final exam, which is scheduled for Thursday, December 10, 11:00 – 1:00, will cover the material presented from November 3 through December 3. In other words, the final exam will not be cumulative.

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 as long as groups contain no more than 5 members. You may work with students in the other section of 546; however, if you choose to do this, the case will be due at the beginning of the 9:30 class irrespective of how many 11:00 section members are in the group. 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.

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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 25 days of graded participation (all class periods except the first and the day of the speech by Tim Griffy). 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 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 one. 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

All of your cases and exams will be returned to you, along with a solution (except that no solution will be provided for the final exam). The solution sheet will show the point breakdown used for grading the case or exam, along with the correct answers. If you believe that your case or exam has been graded in error, I am happy to regrade your paper if you do the following. For a

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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 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 regarding 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.

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 2015 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 the professor instructs 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.

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. 

The Office of Disability Services and Programs. http://sait.usc.edu/academicsupport/centerprograms/dsp/home_index.html provides certification for students with disabilities and helps arrange the relevant accommodations. 

If an officially declared emergency makes travel to campus infeasible, USC Emergency Information http://emergency.usc.edu/ will provide safety and other updates, including ways in which instruction will be continued by means of blackboard, teleconferencing, and other technology.

Discrimination, sexual assault, and harassment are not tolerated by the university.  You are encouraged to report any incidents to the Office of Equity and Diversity http://equity.usc.edu/ or to the Department of Public Safety, http://capsnet.usc.edu/department/department-public-safety/online-forms/contact-us.  This is important for the safety of the whole USC community.  Another member of the university community – such as a friend, classmate, advisor, or faculty member – can help initiate the report or can initiate the report on behalf of another person.  The Center for Women and Men http://www.usc.edu/student-affairs/cwm/ provides 24/7 confidential support, and the sexual assault resource center webpage https://sarc.usc.edu/reporting-options/ describes reporting options and other resources.

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 Statement on Academic Integrity

USC seeks to maintain an optimal learning environment. General principles of academic honesty include the concept of respect for the intellectual property of others, the expectation that individual work will be submitted unless otherwise allowed by an instructor, and the obligations both to protect one’s own academic work from misuse by others as well as to avoid using another’s work as one’s own. All students are expected to understand and abide by these principles. SCampus, the Student Guidebook, (www.usc.edu/scampus or http://scampus.usc.edu) contains the University Student Conduct Code (see University Governance, Section 11.00), while the recommended sanctions are located in Appendix A.

Students will be referred to the Office of Student Judicial Affairs and Community Standards for further review, should there be any suspicion of academic dishonesty. The Review process can be found at: http://www.usc.edu/student-affairs/SJACS/ . Failure to adhere to the academic conduct standards set forth by these guidelines and our programs will not be tolerated by the USC Marshall community and can lead to dismissal.

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 from the receptionist in ACC 101.

Plagiarism – presenting someone else’s ideas as your own, either verbatim or recast in your own words – is a serious academic offense with serious consequences.  Please familiarize yourself with the discussion of plagiarism in SCampus in Section 11 Behavior Violating University Standards https://scampus.usc.edu/1100-behavior-violating-university-standards-and-appropriate-sanctions/.  Other forms of academic dishonesty are equally unacceptable.  See additional information in SCampus and university policies on scientific misconduct, http://policy.usc.edu/scientific-misconduct/.

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,

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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.  

EMERGENCY INFORMATIONUSC Emergencies: 213-740-4321USC Public Safety—Non-Emergencies: 213-740-6000USC Emergency Information Line 740-9233USC Information Line 740-2311KUSC Radio 91.5

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Course Calendar

Key Dates (may change if I become ill)

Tues., 9/22 – Midterm 1 (in class)Thurs., 10/8 – Case 1 due (before class)Friday, 10/9 – Talk by Carson Block, Muddy Waters (2:30 PM)Thurs., 10/22 – Case 2 due (before class)Tues., 10/27 – Talk by Clark Hudgins, Confirmation.com (in class)Thurs., 10/29 – Midterm 2 (in class)Tues., 11/17 – Case 3 due (before class)Friday, 11/20 – Talk by Tim Griffy, EY (10:00 AM)Tues., 11/26 – Case 4 due (by 5:00 PM)Thurs., 12/10 – Final Exam (location TBD)

Key to reading assignment abbreviations:

JGR = Johnstone, Gramling, and Rittenberg, Auditing: A Risk-Based Approach … (10th ed.)BBGP = Beasley, Buckless, Gramling, and Prawitt, Auditing Cases… (6th ed.)

ClassNo. Date Topic(s)

Reading Assignments to do Before Class

Other Assignments Due

OVERVIEW OF AUDITING IN ECONOMY AND SOCIETY

1 Tues.,8/25

Introduction to assurance services

2 Thurs.,8/27

The landscape of financial statement auditing

JGR, Ch. 1 – 1-14, 21-23

Bonner, 2014Rapoport, 2015

3 Tues.,9/1

Economic and societal (investor protection) roles of auditing

JGR, Ch. 2 – 56-65

Ernst & Young, 2012Zeff, 2003 (just skim!)

4 Thurs.,9/3

The audit verification (and communication) processes and their oversight

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

AU 110, 150, 161

CAQ, 2012Cullinan, et al., 2013

For your later info.:AS 7QC 20, 30, 40Lindberg and Seifert, 2011

Spend a few minutes perusing the PCAOB website – pcaobus.org (this is also where you will find the AU readings to the left)

JGR, Prob. 5-51 – answer and be prepared to discuss

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ClassNo. Date Topic(s)

Reading Assignments to do Before Class

Other Assignments Due

5 Tues.,9/8

Independence in the auditor-client relationship

JGR, Ch. 1 – 17-20;Ch. 4 – 152-163

AU 220ET 101.01

Arel, et al., 2005Greenstone, 2013Hermanson, 2009Herrick and Barrionuevo, 2002Kowsman, et al., 2014PCAOB, 2011

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

6 Thurs.,9/10

Professional judgment and skepticism in audit work

JGR, Ch. 4 – 142-147

AS 13.7AU 210, 230.07-.09, 316.13

BASIC FINANCIAL STATEMENT AUDITING CONCEPTS

7 Tues.,9/15

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 8.2-.4; 11.1-11.6; 16.1-16.7AU 315.01 – 315.10QC 20.14- 20.16

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

Answer and be prepared to discuss Laventhol & Horwath case (which will be handed out in previous class)

8 Thurs.,9/17

Audit risk model; material misstatements in financial statement assertions

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

AS 8.5-.11; 9; 11.7-.12; 14, Appendix A (comes after par. 37); 15.11

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)

9 Tues.,9/22

MIDTERM 1

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ClassNo. Date Topic(s)

Reading Assignments to do Before Class

Other Assignments Due

ASSESSING RISKS10 Thurs.,

9/24General process of risk assessment; assessing inherent risk of errors

JGR, Ch. 5 – 193-194; Ch. 6 – 257-258; Ch. 7 – 282-300

BBGP, Asher Farms (51, 53-54)

AS 8.5-.8; 12.1-.17, .41- .71, Appendix A

Read the Asher Farms case to be ready to do in class (BRING YOUR CASE BOOK TO CLASS)

11 Tues.,9/29

Assessing inherent risk of earnings management and fraud; fraud brainstorming

JGR, Ch. 2 – 42-55;Ch. 9 – 396-403

AS 12.49-.71AU 316.1-.13, Appendix (skim)

Duncan, 2001Elkind, 2013KPMG, Pleasant Pasta case, 2014

Read the Pleasant Pasta case to be ready to do in class (not in casebook; will be handed out in previous class)

12 Thurs.,10/1

Using analytical procedures to assess risks

JGR, Ch. 7 – 304-309

BBGP, Laramie Wire Manufacturing (233-235)

AS 12.46-.48

Boyle, et al., 2015Hitzig, 2004

Read the Laramie Wire case to be ready to do in class (BRING YOUR CASE BOOK TO CLASS)

Also answer and be prepared to discuss the problems in the extra packet of materials (which will be handed out in previous class)

13 Tues.,10/6

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

JGR, Ch. 7 – 302-304

BBGP, Sarbox Scooter (181-182, 189-190)

AS 12.18 -.27, .35-.40AU 322 (SKIM)

COSO, 2013

For your later info.: Ligthle, Baker, and Castellano, 2015

Read the Sarbox Scooter case to be ready to do in class (BRING YOUR CASE BOOK TO CLASS)

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ClassNo. Date Topic(s)

Reading Assignments to do Before Class

Other Assignments Due

14 Thurs., 10/8

Assertion-level controls; general process of control risk assessment

JGR, Ch. 3 – 94-95, 101-102

Buckless, Picture Factory exercise

AS 12.28-.34, .37-.40

Case 1 – write up and email to me before class starts

Skim the Picture Factory materials and be prepared to do in class (not in casebook; will be handed out in previous class)

Friday,10/9, 2:30 PM

Speaker for 557 – Carson Block, Muddy Waters

15 Tues.,10/13

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 misst. 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.,10/15

Tests of controls, including sampling

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

AS 13.16-.35AS 15.13-.28AU 350.01-.14, .31-.43

Hall, et al., 2013

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

17 Tues.,10/20

Sampling, continued; Internal control reports

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

BBGP, Sarbox Scooters (Appendix B only, i.e., 191-194)

AS 5.62-.69, .85-.92,

Read the Sarbox Scooter pages and be ready to use Appendix B in class (BRING YOUR CASE BOOK TO CLASS)

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Appendix AClassNo. Date Topic(s)

Reading Assignments to do Before Class

Other Assignments Due

18 Thurs., 10/22

Basic principles of evidence and documentation

JGR, Ch. 6 – 230-244

AS 15

Case 2 – write up and email to me before class starts

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., 10/27

Basic principles of evidence and documentation, continued; Talk by Clark Hudgins, Senior Vice-President, Confirmation.com

JGR, Ch. 6 – 250-255, 257-261

AS 3.1-.13AU 330 (in preparation for talk), 336

KPMG, 2014

20 Thurs., 10/29

MIDTERM 2

RESPONDING TO RISKS AND REPORTING

21 Tues., 11/3

Introduction to substantive tests; Planning and performing substantive analytical procedures

JGR, Ch. 6 – 244-250; Ch. 8 – 308-312

AS 8.9-.11AS 13.8-.10, .36-.38AU 329, 350.48

22 Thurs., 11/5

Performing substantive analytical procedures; planning and performing tests of details

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

BBGP, Bud’s Big Blue Mfg. (273-274);Wally’s Billboard & Sign Supply (249-250, 252)

AS 13.39-.46AU 330, 331

McConnell, et al., 2014

KPMG, Majestic Hotels

Read the Majestic Hotels case’s 2 exs. of analytical procedures; be ready to discuss how well the auditors did on these (not in casebook; will be handed out in previous class).

Read the Bud’s pages and Wally’s pages and be ready to use in class (BRING YOUR CASE BOOK TO CLASS)

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case, 2012

ClassNo. Date Topic(s)

Reading Assignments to do Before Class

Other Assignments Due

23 Tues., 11/10

Performing tests of details, including sampling

JGR, Ch. 8 – 346, 359-372

Kinney, Jeff’s Designs case, 1996

AS 13.36-.47AU 350.15-.30

Skim the Jeff’s Designs case to be ready to go over in class (not in casebook; will be handed out in previous class)

24 Thurs., 11/12

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

BBGP, RedPack Beer (301-308)

Ernst & Young, Wildcat Sporting Goods case, 2012

AU 342

Read RedPack Beer and and be ready to do in class (BRING YOUR CASE BOOK TO CLASS)

Read Wildcat case and be ready to go over in class (not in casebook; will be handed out in previous class)

25 Tues., 11/17

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

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

AS 12.49-.58, .65-.69AS 13.12-.15

Carmichael, 2010Clikeman, 2013Morhweis, 2003

For your later reading:AS 18AU 317

Case 3 due: Write up and email to me before class

26 Thurs., 11/19

Aggregating results and materiality

JGR, Ch. 14 – 664-668; Ch. 16 – 775-778Ch. 18 – 958-967

AS 14.10-.26

Kinney, Precision Vision case, 1996

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

Read Precision Vision case and be prepared to do in class (not in casebook; will be handed out in previous class)

27 Fri.,11/20,

Talk by Tim Griffy, EY on resisting client pressures

14

10 AMClassNo. Date Topic(s)

Reading Assignments to do Before Class

Other Assignments Due

Tues., 11/26

Catch-up day (I will use this day if I have to cancel a class; otherwise there will be no class this day since the talk on 11/20 is considered a class)

Case 4 due: Write up and email to me by 5:00 PM

28 Thurs., 11/28

USC CLOSED/ HAPPY THANKSGIVING!

29 Tues., 12/1

Finishing the audit; going-concern judgments; etc.

JGR, Ch. 14—668--670, 677-689

AS 6.1-.11AU 341

For your later info.:

AS 7, 17AU 333, 337, 560, 561

JGR, Problems 14-63, 14-87 – answer and be prepared to discuss

30 Thurs., 12/3

Auditor reports JGR, Ch. 15

KPMG, 2014

For your later info.:AS 6AU 508, 543

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

Thurs., 12/10, 11- 1

FINAL EXAM(location TBD)

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Reference List

Class 2

Bonner, S.E., “Notes on Anecdotal and Empirical Evidence,” 2014.

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 10: Enhancing the Reliability of Financial Reporting and Audit Quality (2012), http://www.ey.com/Publication/vwLUAssets/The_Sarbanes-Oxley_Act_at_10_-Enhancing_the_reliability_of_financial_reporting_and_audit_quality/$FILE/JJ0003.pdf

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.

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Class 25

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

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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