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Peach Blossom Cologne Company audit

Imagine that you're the Senior Auditor on the Peach Blossom Cologne Company audit. The Partner on the engagement comes into your office and tells you she's not satisfied with the memo that Jasper Parsons (the former Senior) wrote on Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement. She thinks a little in-house seminar is needed to train everyone and she's given you the job of writing and presenting the seminar. She suggests that you look for an article that she remembered reading in the January 2008 Journal of Accountancy and also that you read the beginning of SAS No. 109. She wants you to email her a word narrative of how you think the firm should approach gaining an understanding of the entity and assess the related risks. Please prepare that memo.

Solution Preview

Unlike some prior changes to the auditing standards, SAS No. 109 is not a standard that can be "added on" to existing practices. Instead, it requires that auditing tests be modified to address client-specific risk of material misstatement.

Prior to the finalizing of the audit programs, audit teams must study the internal controls and environment of each audit client. This must be done even if the controls will not be tested or relied on -- a major change to many audit, especially small ones.

After the client's business, environment, initial analytical review and ...

Solution Summary

Unlike some prior changes to the auditing standards, SAS No. 109 is not a standard that can be "added on" to existing practices. Instead, it requires that auditing tests be modified to address client-specific risk of material misstatement....see posting for rest....about six paragraph and two references....

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