Writing Assignment Accounting

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ACC 419: AUDITING THEORY

Guidelines for Group Research Project

Your group will be responsible to conduct a research project on auditing issues that are

covered in this class. The objectives of this project are as follows:

1. To acquaint you with the annual report of a publicly held company audited by a CPA firm.

2. To provide data and analysis for the practical application of certain steps in the audit process.

3. To allow you to develop research skills and experience working in teams, as is done in actual auditing.

Here are detailed instructions for conducting your research project:

1. The U.S. Securities and Exchange Commission (SEC) requires publicly traded companies to electronically file a variety of forms or reports (for example, 8-

K, 10-K, 10-Q, and DEF-14a) and makes most of these electronic documents

available on the Internet via EDGAR. EDGAR stands for Electronic Data

Gathering, Analysis, and Retrieval system. The primary purpose for EDGAR

is to increase the efficiency and fairness of the securities market for the

benefits of investors, corporations, and the economy by accelerating the

receipt, acceptance, dissemination, and analysis of time-sensitive corporate

information filed with the agency.

Visit the SEC Web site (www.sec.gov) and get yourself familiar with the

search engine EDGAR for company filings. Then choose a publicly held

company with stocks actively traded on NYSE or NASDAQ and obtain a

copy of its most recent 10-K report. Answer the following questions:

a. What is the company’s industry? b. What are its primary products or services? c. Who are its customers? d. Where is the company located? e. What are the main financial characteristics of the company:

 Total Assets

 Equity

 Revenue

 Net Income (Loss)

 Other relevant metrics f. Who are the major competitors/peers of this company? g. Look at the annual report:

 What image does it intend to convey?

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 What messages are being communicated to the shareholders?

Are these messages consistent with the disclosures in the

financial statements?

2. Obtain outside information about the company and its industry. Answer the

following questions:

a. What are the key characteristics of the industry?

b. Where is the company in its life cycle?

c. Describe at least three most important factors for success in this business?

d. How does this company stand with respect to these factors?

e. What legal or regulatory matters are of concern for the company?

f. What social matters are of concern for the company?

3. Perform preliminary analytical procedures for the company:

a. Obtain the financial statement data for the current year and prior two years.

Analyze the year-to-year change in account balance for the following

financial statement line items. Document the trend analysis in a format

similar to the following:

% Change % Change

Account Balance 2015–2016 2016–2017 Net sales

Cost of sales

Operating expenses

Operating income

Net receivables

Inventories

Accounts payable

Long-term debt

b. For the current and prior years, calculate the common financial ratios that

are applicable to the company, including short-term debt-paying ability,

liquidity activity, ability to meet long-term debt obligation, and

profitability ratios.

c. Compare the company’s main financial indicators (market cap, revenue,

employees, revenue growth, gross margin, net income, and EPS) with the

industry benchmark (you may find relevant information from Yahoo

Finance).

4. Based on the background research and analytical procedures performed in

Stages a-c, summarize your observations about the company’s business,

including your assessment of the client’s business risk. Prepare a broad audit

plan:

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a. Which transaction cycles are the high-risk areas?

b. Identify at least three risk areas in the audit of this company and describe:

(1) the risk; (2) why you have assessed this as a specific risk; and (3) how

you would perform the audit to address this risk.

c. If management faced tremendous pressure regarding the entity’s financial

performance, what opportunities might exist for them to engage in

fraudulent financial reporting?

5. Which audit firm performed the audit? What kind of opinion has the audit

firm issued on the financial statements (and on the internal control over

financial reporting)? Are they consistent with what you expect based on your

previous analysis?

Written Report:

You are required to submit a written report per group (prepared in Microsoft Word, not

exceeding 12 pages in length; double-spaced with font size of 12). Your writing should

be original and free from plagiarism (referring to the University Catalog's section on

Academic Honesty). If you find useful information in an article or web site and you use it

in some form in your paper, indicate where you got the information from by using

quotations and proper references. Use of reference material and citations are expected

in a research paper. The final copy of the report should have page numbers with a Table

of Contents and Bibliography. Charts and tables summarizing your findings may also be

included as appendices in your report.

A formal copy of the report is due on May 22, 2018, with no exceptions. The written report accounts for 25 points of your overall course grade, and will be graded on the basis of originality, content, and grammar.

For help with your writing, you may contact University Writing Center at 909-869-5343.

Oral Presentation:

Your group is also required to present the main findings of this project during the last

week of classes. You should prepare a reasonable number of PowerPoint slides for your

presentation. Each member of the group must be present and take an active role in the

presentation. The oral presentation accounts for 15 points of your overall course grade, and will be graded based on the PowerPoint slides, content, and skills of your

presentation. The total grade for the Group Project is 40 points (8% of total grade).

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Peer Evaluation:

At the end of the quarter, you will be asked to evaluate each group member’s

participation in, and contribution to, the group project (including your own). This

evaluation will be taken into consideration when assigning project grades to the

individual team members.