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Plain Truth Advertising: Value of the Annual Audit of its Books

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Plain Truth Adverting employs KPR, a large accounting firm, to audit its books each year. This involves considerable expense for the advertising firm, since sales account managers are very independent and maintain separate record keeping systems. Should the CEO of Plain Truth cancel the audit and rely on a brief year-end summary from each sales account manager? Why?

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Solution Summary

The solution determines the value of the annual audit of its books.

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Plain Truth Advertising Reporting System

Question: Plain Truth Advertising employs KPR, a large accounting firm, to audit its books
each year. This involves considerable expense for the advertising firm, since sales
account managers are very independent and maintain separate record keeping
systems. Should the CEO of Plain Truth cancel the audit and rely on a brief yearend
summary from each sales account manager? Why?

Although Managerial Accounting does not follow the same legal requirements as Financial
Accounting, Plain Truth should maintain accurate financial records. The CEO should require
accurate reporting, especially on an annual basis, from the account managers.

Managerial Accounting is a tool whereby the CEO can access relevant data he needs to make
tactical and strategic decisions concerning the company. He can only ...

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