Faculty of Liberal Arts and Professional Studies s1

School of Administrative Studies Faculty of Liberal Arts and Professional Studies YORK UNIVERSITY

Summer 2013 Course Outline AP/ADMS 4553.03 Sections A and B Auditing: Advanced Topics

REQUIRED COURSE TEXT / READINGS:

1. C.I.C.A. Handbook, Canadian Institute of Chartered Accountants (Assurance Sections) – the electronic version is available from York Library

2. Course Kit - Purchase at the Bookstore (do not purchase course kits from previous terms – they do not contain the relevant cases or material)

3. Any current introductory auditing text. You will need to refer back to the text to help you analyze the cases.

Any additional required reading materials will be posted on the course web site.

Warning: Photocopying more than 10% of a textbook is illegal, and may involve penalties. Do not duplicate textbooks or obtain these photocopies. Students are reminded of York University's policy regarding academic dishonesty as outlined in the York student calendars.

WEIGHTING OF COURSE:

Course WORK Description (See Also Class Due Date Weight Web Site) Two Pairs Case Assignment done in pairs. See Monday June 3 10% Analyses below for further information and Monday July 8

Group Case See below for further information Various Dates 15% Assignment/ Presentation of Integrated Case Case preparation, See below for further information 10% group and individual participation Midterm Sunday June 23rd, 2013 7pm -9 pm 25% Location – CLH-A

Final Cumulative: Covering Sessions TBA – held 40% 1 – 12 during regular exam schedule (Tuesday August

1 6- Friday August 16) Total 100%

Reallocation of Marks if a Midterm Examination is Missed for a Valid Reason

If a midterm examination is missed due to a valid reason such as illness or other reason approved by the Course Director, the midterm mark allocation of 25% will be added to the final examination percentage.

The documentation required to support this reallocation are as follows: 1. For illness, a completed medical form (physician's statement) provided by the Registrar’s Office, http://www.yorku.ca/laps/council/students/documents/APS.pdf OR for another valid reason, the documentation requested by the Course Director, AND 2. A signed statement stating that you are aware that your final examination will be worth 65%. This signed statement is to be attached to the documentation provided in (1) above.

Physician statements need to be from the same day as the midterm or the day immediately after. Physician statements older than one day after the date of the midterm exam will not be accepted.

Pair Case Analyses Students are expected to work in groups of two and prepare a response to two audit simulations which will be posted to the course website. Your analysis will be evaluated on the quality of: (1) your analysis, (2) your research, and (3) professionalism of presentation.

NOTE: The pairs assignment, and group integrated case assignment are to be posted to turnitin.com using Moodle – details will be given at the first session.

Class Preparation, Group and Individual Participation This course is designed to encourage active participation. In each session we will discuss specific auditing cases. Participation marks of up to 10% will be assigned for participation in discussions and attendance. Every student is expected to contribute by actively engaging in both group and class discussions.

Students are expected to have read each assigned case and to be prepared to discuss the key concepts and issues raised by those cases. For the directive cases, students are expected to have prepared responses to the assigned questions and then discuss with their groups. While in class, the groups are expected to prepare a group response (GR) to an assigned question. While in class, they will work with their group members to prepare a one-page Issue Analysis Paper (IAP).

The participation grade will also include individual participation – students are expected to prepare for each session, attend classes regularly, and actively participate in class discussions (this includes discussion of the CICA Handbook Sections, Readings, and Cases).

2 NOTE: Students must bring the relevant CICA Handbook sections and CASs (access through library eResouces) as well as the Course Kit to class in order to facilitate their group discussions.

Group Integrated Case Assignment/Presentation of Integrated Case Each person will be responsible for presenting one case to the class in a group. The groups will be formed and the integrated case will be assigned in session 2.

COURSE INSTRUCTOR / CONTACT:

Section Course Director E-mail A Larry Yarmolinsky [email protected]

B Bartosz Amerski [email protected]

CALENDAR DESCRIPTION:

Examines current and/or advanced issues affecting the audit profession. Coverage includes the public's expectation of audits and various types of engagements including: special reports, non- audits, prospectuses, future oriented financial statements and comprehensive audits. Prerequisites: 1) For students in an Honours program, 78 credits including AP/ADMS 3595 3.00, AP/ADMS 4551 3.00, or 2) or other students, these above-listed courses and an average grade of C+ or better in AP/ADMS 3585 3.00 and AP/ADMS 3595 3.00. Course credit exclusions: None. PRIOR TO FALL 2009: Prerequisites: 1) For students in an Honours program, 78 credits including AK/ADMS 3595 3.00, AK/ADMS 4551 3.00, or 2) or other students, these above-listed courses and an average grade of C+ or better in AK/ADMS 3585 3.00 and AK/ADMS 3595 3.00. Course credit exclusion: AK/ADMS 4553 3.00.

PREREQUISITES/CO-REQUISITES:

Prerequisites: 1) For students in an Honours program, 78 credits including AP/ADMS 3595 3.00, AP/ADMS 4551 3.00, or 2) or other students, these above-listed courses and an average grade of C+ or better in AP/ADMS 3585 3.00 and AP/ADMS 3595 3.00. Course credit exclusions: None. PRIOR TO FALL 2009: Prerequisites: 1) For students in an Honours program, 78 credits including AK/ADMS 3595 3.00, AK/ADMS 4551 3.00, or 2) or other students, these above-listed courses and an average grade of C+ or better in AK/ADMS 3585 3.00 and AK/ADMS 3595 3.00. Course credit exclusion: AK/ADMS 4553 3.00.

Students are personally responsible to ensure that they have the required prerequisites as stated in the course outline or in the course calendar. Students who do not have the prerequisites are at risk of being dropped from the course at any time during the course. The department will not be responsible for refunds resulting from students being dropped from a course due to a lack of the appropriate prerequisites.

3 EXPANDED COURSE DESCRIPTION:

Coverage will include: audit risk, corporate governance, standards for assurance engagements, various types of engagements such as public sector audits, internal audit, comprehensive audits, forensic audits, and issues related to not-for-profit organizations and small business audits. This course aims to develop knowledge of the assurance concepts and practices relevant to selected special topics. The course is designed to enhance students’ analytical and critical thinking skills. Therefore, the course will use a variety of cases to help understand the various concepts. Assignments and classes are structured so that students can develop their oral and written communication skills as well as their research skills.

4 : ORGANIZATION OF THE COUSE

Session 1 Competence and Independence Learning Objectives: Monday May 6  To review course expectations and evaluation  To review some key audit concepts  To update the status of adoption of international auditing standards  To understand the factors that impact auditor judgment  To understand the current climate for external auditors  To understand the debate surrounding auditor independence and competence

REQUIRED READING Course Kit: . Summary of the Financial Audit Process . Professional Judgment; Auditors’ Contribution to the Quality and Integrity of Financial Reporting” . Is it the Auditor or is it the Process? . What Does it Take to be an Auditor? . Why Good Accountants do Bad Audits . Enron as a Symptom of Audit Process Breakdown . Background on the Canadian Regulatory Environment” . Research on Rotation-Studies Show that Audit-Firm or Audit Partner Rotation Doesn’t Necessarily Improve Audit Quality . A principles-based approach . Case 2:3: WorldCom: Professional Responsibility (refer to Canadian References to answer questions) . Case 2.4: Enron: Quality Assurance (refer to Canadian References to answer questions)

Course Website: . Session 1 Slides

CICA Handbook Sections: . CAS 200 – Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Canadian Standards . CAS 220 – Quality Control for An Audit of Financial Statements

Session 2 Engagement Risk and Fraud Risk Assessment Learning Objectives: Monday May 13  To review the factors underlying engagement risk assessment  To understand the link between the client’s strategic direction and identification of significant audit risk  To understand the motivations behind and the methods related to earnings management  To understand the use of audit procedures for detecting financial statement fraud  To understand auditor’s responsibility to consider fraud in an audit of the financial statements  To apply this knowledge when developing audit strategies and

5 determining the appropriate audit evidence

REQUIRED READING: Course Kit . Evaluating Engagement Risk . Auditing Considerations in an Uncertain Economic Environment . KRisk: A Computerized Decision Aid for Client Acceptance and Continuance Risk Assessments . The Hidden Risk in Analytical Procedures: What WorldCom Revealed . HP Issues Statement Regarding Autonomy Impairment Charge . ZZZZ Best . ZZZZ Best Audit Work on Restoration Projects . Areospace Lighting . How to Analyze an Integrated Assurance Case . How to Prepare an Audit Planning Memo . Auditing for Fraud (Pages 409-411, 413-444) . Techniques for Detecting Shenanigans . Group Activity – Brainstorming and Planning the Audit

CICA Handbook Section: . CAS 240-The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements . CAS 250 The Auditor’s Responsibilities to Laws and Regulations in an Audit of Financial Statements . CAS 260 – Communications with Those Charged with Governance . CAS 315 – Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment . CAS 320 Materiality in Planning and Performing an Audit . CAS 330 – The Auditor’s Responses to Assessed Risks . CAS 450 Evaluation of Misstatements Identified During the Audit . CAS 500 –Audit Evidence . S5750: Communication with Management of Matters Identified During the F/S Audit

REVIEW the following: CICA Handbook Sections: . CAS 200 Overall Objectives of the Independent Auditor, and the Conduct of an Audit Note: No Class on Monday May 20 (Victoria Day) Session 3 Internal Control Assessment and Corporate Governance Learning Objectives: Monday May 27  To review the auditors’, management’s, and the audit committees responsibilities for internal control  To understand how to conduct an audit of the effectiveness of internal controls  To learn how to determine what is a material versus significant control deficiency

6  To understand the accountability relationships among the external auditor, internal auditor, management, and the audit committee  To understand how to assess the corporate governance function in the context of the external audit

REQUIRED READING: Course Kit: . Notes on Audits of Internal Controls and Reporting on Audits of Internal Controls . Evaluate the Control Environment . Notes on Corporate Governance . Money For Nothing . The Front Line: Audit Committees . Quality Auto Products

Course Website: . Session 3 Slides . SEC versus Siemens . Care for Kids

CICA Handbook: . Section 5925-An audit of internal control over financing reporting that is integrated with an audit of financial statements . CAS 265 – Communicating Deficiencies in Internal Control to Those Charged with Governance and Management . CAS 610 –Using the Work of the Internal Auditors

Auditing Going Concern and Related Parties Session 4 Learning Objectives: Monday June 3  To understand the risks related to Going Concern  To understand how to address and evaluate the Going Concern assumption  To understand the risks related to Related Party Transactions  To understand how to audit Related Party Transactions

REQUIRED READING: Course Kit: . Notes on Making a Going Concern Assessment . Notes on Auditing Related Party Transactions . Controls over Related Party Transactions at Scotiabank . Group Activity – Related Party Transactions at Tyco

CICA Handbook: . CAS 550 – Related Parties . CAS 570 - Going Concern . CAS 706 - Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report

Your 1st pair case assignment is due today – See Course Website

7 Session 5 Auditing Complex Revenue Transactions Monday June 10 Learning Objectives:  To be able to identify the risks related to capitalization and deferral  To understand how to audit deferred costs  To be able to identify the risks related to Revenue Recognition  To understand how to audit unique revenue situations  To understand the professional judgment involved in evaluating high risk audit areas

REQUIRED READING Course Kit: . Notes on Auditing Revenue . Group Activity-Revenue Recognition . Violet Lifestyle Inc.

Course Website: . Session 5 Slides . Dry Quick

CICA Handbook: . CAS 240 – The Auditors’ Responsibilities Relating to Fraud in an Audit of Financial Statements (Appendices 1,2, and 3) . CAS 520 – Analytical Procedures

Session 6 Auditing Management Estimates, Fair Value, and Capitalization Monday June 17 Learning Objectives:  To understand the audit risk related to management estimates  To learn how to apply professional judgment in evaluating management estimates  To be able to identify when there is a need to rely upon others who have a particular expertise  To understand the audit risk related to auditing Fair Values

REQUIRED READING: Course Kit:

. Notes on Auditing Accounting Estimates and Fair Value . Notes on the Impact of the Credit Crisis on Estimates and Fair Value . The Gray Area of Bias . Warmth Home Comfort Ltd. . Great Lakes Cruise Inc.

Course Website: . Session 6 Slides . Billy Beats

CICA Handbook: . CAS 540 – Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures . CAS 580 –Written Representations . CAS 620 – Using the Work of an Auditor’s Expert

8 Session 7 Midterm Exam (Covers Material from Sessions 1-6) Sunday June 23 2013 Sunday June 23 7 pm- 9 pm Location CLH-A

Session 8 Fair Value Continued and Internal Audit

Learning Objectives: Monday June 24 . To review the difference between internal audits and independent financial statement audits . To outline the independence problems of internal, and external, auditors

. The importance of Internal Audit Opinions . The Social Media Scene . World Com: The Internal Audit Function . WorldCom: Internal audit lessons to be learned . Canadian Links

Course Website: . Session 8 Slides . Group Activity – Reliance on Internal Audit

Note: No Class on Monday July 1 (Canada Day) Session 9 Fraud Awareness Auditing Learning Objectives: Monday July 8  To understand the use of extended audit procedures for detecting misappropriation of assets  To understand the various categories of fraud  To understand the difference between a financial audit and a forensic audit

REQUIRED READING: Course Kit: . Notes on the Forensic, Fraud and Regular Auditors . A Practical approach to Fraud Risk . 4 steps to a Successful Fraud Risk assessment . One Fraud Leads to Another . Elementary Fraud . The Cashless Fraud . If You Need Love, Get a Puppy: A Case Study on Professional Skepticism and Auditor Independence . Auditing: A Business Approach- Chapter 9- Auditing for Fraud . Knutson Products-A Fraud Investigation

- 2nd Pairs Case Assignment is due today (See Course Website)

Session 10 Non-Traditional Assurance Services and Special Reports

Monday July 15 Learning Objectives:

9  To understand the umbrella standards (S 5025) for assurance engagements  To understand the issues related with conducting non- traditional assurance engagements,  To understand the differences among the various types of special reports  To be able to identify which type of report best suits stakeholders’ economic and information needs

 Waste Watchers  Financial Times Business School Rankings: A Non-traditional Assurance Case  Additional Information for Financial Times Business School Ranking Case  24X7 Incorporated

Course Website:  Session 10 Slides  Tae Kwang Vina

CICA Handbook: . S5025: Standards for Assurance Engagements  S5800 – Special Reports: An Introduction  S5815 – Special Reports on Compliance with Agreements  S8500 – Reviews of Financial Information Other Than F/ S  S8600 –Review of Compliance with Agreements and Regulations  S9100 – Specified Audit Procedures

Session 11 Reviews, Compilations, Small Business Audits, Other Auditor Responsibilities

Monday July 22 Learning Objectives:  To understand the risks associated with conducting compilations and reviews  To review the standards associated with reviews and compilations  To understand the audit issues and risks unique to Small Entities  To understand the control issues unique to Small Entities

REQUIRED READING: Course Kit: . Notes on Auditing A Small Business . Colourful World . Q Dots Case . Other Public Accounting Services and Reports-Reviews and Compilations

10 CICA Handbook: . S8100: General Review Standards . S8200: Public Accountant’s Review of Financial Statements . S9200 – Compilation Engagements . AuG-5 Compilation engagements- Financial Statement Disclosures

Session 12 Non-Profit Audits, and Review of material covered in this course

Monday July 29 Learning Objectives:  To review definitions and disclosures related to not-for-profit organizations  To understand new accounting standards applicable to financial reporting framework of NFPs.  To understand the control issues unique to NFPs  To understand the audit issues and risks that are unique to NFPs and the adaptation of new accounting standards.

REQUIRED READING: Course Kit: . Notes on Auditing Not-for Profit . Yorktown Art Gallery . Zoom Snowboards

CICA Handbook:

Part III: . S4400: Financial Statement Presentation by Not-For-Profit Organizations . S4410: Contributions: Revenue Recognition . S4420: Contributions Receivable . S4431: Tangible Capital Assets Held by Not-for Profit Organizations . S4440: Collections Held by Not-For-Profit Organizations . S4450: Reporting Controlled and Related Entities by Not-For- Profit Organizations . S4460: Disclosure of Related Party transactions by Not-For- Profit Organizations

COURSE LEARNING OBJECTIVES:

The purpose of this course is to enhance students’ analytical and critical thinking as well as your professional judgment. Specifically, upon completing this course you should be able to:

1. Understand the current climate for external auditors and the importance of the external auditor being independent and competent 2. Indentify and rank accounting and auditing issues.

11 3. Develop audit procedures to address the key accounting issues 4.Identify the key risks impacting the auditor’s overall assessment of their engagement risk 5. Prepare an audit strategy based on a risk assessment. 6. Discuss the risks relating going concern and related party transactions and the importance to the external auditor doing a financial statement audit. 7. Understand the accountability relationships among the external auditors, internal auditors, management and the audit committee 8. Discuss the auditor’s responsibilities for detecting fraud during a financial statement auditor 9. Explain the difference between a direct reporting and an attest engagement 10. Describe the differences between an audit, review and a compilation engagement 11. Discuss the various types of special reports and the standards to be followed by the auditor involved in a special report 12. Identify the key risks associated with audits of not-for-profit organizations and small businesses

RELEVANT UNIVERSITY REGULATIONS

Deferred standing may be granted to students who are unable to write their final examination at the scheduled time or to submit their outstanding course work on the last day of classes. In order to apply for deferred standing, students must complete a Deferred Standing Agreement (DSA) form and submit their request no later than five (5) business days from the date of the exam. The request must be properly submitted with supporting documentation directly to the main office of the School of Administrative Studies (282 Atkinson), NOT to the Course Director. These requests will be considered on their merit and decisions will be made available to the students by the main office in the School's web site (under the heading of 'Links'), no individualized communication will be sent by the School to the students (no letter or e-mails). The status of the DSA submitted shall be checked at: http://apps.eso.yorku.ca/apps/adms/deferredexams.nsf

Students with approved DSA will be able to write their deferred examination during the School's deferred examination period. No further extensions of deferred exams shall be granted. The format and covered content of the deferred examination may be different from that of the originally scheduled examination. The deferred exam may be closed book, cumulative and comprehensive and may include all subjects/topics of the textbook whether they have been covered in class or not. Any request for deferred standing on medical grounds must include an Attending Physician's Statement form; a “Doctor’s Note” will not be accepted.

DSA Form: http://www.registrar.yorku.ca/pdf/deferred_standing_agreement.pdf Attending Physician's Statement form: http://www.yorku.ca/laps/council/students/documents/APS.pdf The deferred examinations for the Summer 2013 term shall be held on the weekend of September 27- 29, 2013.

Academic Honesty: The Faculty of Liberal Arts and Professional Studies considers breaches of the Senate Policy on Academic Honesty to be serious matters. To quote the Senate Policy on Academic Honesty. The Policy on Academic Honesty is an affirmation and clarification for members of the University of the general obligation to maintain the highest standards of academic honesty. As a clear sense of academic honesty and responsibility is fundamental to good scholarship, the policy recognizes the general responsibility of all faculty members to foster

12 acceptable standards of academic conduct and of the student to be mindful of and abide by such standards. Suspected breaches of academic honesty will be investigated and charges shall be laid if reasonable and probable grounds exist. Students should review the York Academic Honesty policy for themselves at: http://www.yorku.ca/secretariat/policies/document.php?document=69 Students might also wish to review the interactive on-line Tutorial for students on academic integrity, at: http://www.yorku.ca/tutorial/academic_integrity/

Grading Scheme and Feedback Policy: The grading scheme (i.e. kinds and weights of assignments, essays, exams, etc.) shall be announced, and be available in writing, within the first two weeks of class, and, under normal circumstances, graded feedback worth at least 15% of the final grade for Fall, Winter or Summer Term, and 30% for ‘full year’ courses offered in the Fall/Winter Term be received by students in all courses prior to the final withdrawal date from a course.

Note: Under unusual and/or unforeseeable circumstances which disrupt the academic norm, instructors are expected to provide grading schemes and academic feedback in the spirit of these regulations, as soon as possible. For more information on the Grading Scheme and Feedback Policy, please visit: http://www.yorku.ca/secretariat/policies/document.php?document=86

In-Class Tests and Exams - the 20% Rule: For all Undergraduate courses, except those which regularly meet on Friday evening or on a weekend, tests or exams worth more than 20% will not be held in the two weeks prior to the beginning of the official examination period. For further information on the 20% Rule, please visit: http://www.yorku.ca/secretariat/policies/document.php?document=141

For further information on examination scheduling and other important dates, please refer to: http://www.registrar.yorku.ca/enrol/dates/index.htm

Reappraisals: Students may, with sufficient academic grounds, request that a final grade in a course be reappraised (which may mean the review of specific pieces of tangible work). Non- academic grounds are not relevant for grade reappraisals; in such cases, students are advised to petition to their home Faculty. Students are normally expected to first contact the course director to discuss the grade received and to request that their tangible work be reviewed. Tangible work may include written, graphic, digitized, modeled, video recording or audio recording formats, but not oral work. Students need to be aware that a request for a grade reappraisal may result in the original grade being raised, lowered or confirmed. For reappraisal procedures and information, please visit the Office of the Registrar site at: http://www.registrar.yorku.ca/grades/reappraisal/index.htm

Accommodation Procedures: LA&PS students who have experienced a misfortune or who are too ill to attend the final examination in an ADMS course should not attempt to do so; they must pursue deferred standing. Other students should contact their home Faculty for information. For further information, please visit: http://www.registrar.yorku.ca/exams/deferred/index.htm

Religious Accommodation: York University is committed to respecting the religious beliefs and practices of all members of the community, and making accommodations for observances of special significance to adherents. For more information on religious accommodation, please visit: https://w2prod.sis.yorku.ca/Apps/WebObjects/cdm.woa/wa/regobs

Academic Accommodation for Students with Disabilities

13 The nature and extent of accommodations shall be consistent with and supportive of the integrity of the curriculum and of the academic standards of programs or courses. Provided that students have given sufficient notice about their accommodation needs, instructors shall take reasonable steps to accommodate these needs in a manner consistent with the guidelines established hereunder. For more information please visit the Disabilities Services website at http://www.yorku.ca/cds/

York’s disabilities offices and the Registrar’s Office work in partnership to support alternate exam and test accommodation services for students with disabilities at the Keele campus. For more information on alternate exams and tests please visit http://www.yorku.ca/altexams/

Please alert the Course Director as soon as possible should you require special accommodations.