You Decide – Smackey Dog Foods Inc

Smackey Dog Foods, Inc. is a familiar story in terms of small business start-ups. They started in a family kitchen, experienced explosive growth, and have had some troubles handling the accounting and business side of the business. My firm, Keller CPA’s, does not have specific experience with auditing a dog food manufacturer, but we certainly have a good bit of experience with similar small business accounting and auditing issues.
The first thing to address is the SEC’s role or influence over Smackey Dog Foods. Since Smackey is private there is not a direct oversight or reporting role for the SEC. Indirectly, however, they help establish GAAP and have a role in how the books should be maintained, how the officers should conduct business, and how Keller CPA’s determine they can accept the engagement, ie their independence (sec.gov).
My firm is sending Pete, Ben, and Maureen to visit the client, assess the situation, and plan the audit. To plan the audit they will have to begin developing the audit strategy, identifying problem areas and specific areas where material misstatement might occur. In this case I would identify the forecasted sales numbers as one area due to Jill’s less-than-ideal management methods. Also, they will need to analyze the lawsuit and the lawsuit of their biggest buyer to get a feel for the risk associated with those. The audit plan will also include the nature of the business and what it does, a dog food manufacturing company and their operations. The plan will detail any complexities with the audit, such as the sales projection method, and the fact that they are starting just prior to year end. They will also perform preliminary analytical procedures by comparing Smackey to other similar dog food manufacturers. Lastly, the staff needs to set the level of acceptable audit risk.