Auditing

Cases

An Interactive Learning Approach

S EVE NT H E DI TI ON

Mark S. Beasley Frank A. Buckless

Steven M. Glover Douglas F. Prawitt

New York, NY
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Library of Congress Cataloging-in-Publication Data

Names: Beasley, Mark S.
Title: Auditing cases : an interactive learning approach / Mark S. Beasley
[and three others].
Description: Seventh edition. | New York : Pearson Education, [2019]
Identifiers: LCCN 2017042450| ISBN 9780134421827 | ISBN 0134421825
Subjects: LCSH: Auditing--Case studies. | Forensic accounting--Case studies.
Classification: LCC HF5667 .A8318 2019 | DDC 657/.45--dc23
LC record available at https://lccn.loc.gov/2017042450

1 18

ISBN 10: 0-13-442182-5

ISBN 13: 978-0-13-442182-7
 TAB L E O F CO N T E NT S

INTRODUCTION Professional Judgment . . . . . . . . 1

SECTION 1 Client Acceptance

1.1 Ocean Manufacturing, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
The New Client Acceptance Decision

SECTION 2 Understanding the Client’s

Business and Assessing Risk
2.1 Your1040Return.com . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Evaluating eBusiness Revenue Recognition, Information Privacy,
and Electronic Evidence Issues
2.2 Apple Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Evaluation of Client Business Risk
2.3 Asher Farms, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Understanding of Client’s Business Environment
ADDITIONAL ONLINE CASE
Flash Technologies, Inc. . . . . . . . www.pearsonhighered.com/beasley
Risk Analysis

SECTION 3 Professional and Ethical Issues

3.1 A Day in the Life of Brent Dorsey . . . . . . . . . . . . . . . . . . . . . . . 37
Staff Auditor Professional Pressures
3.2 Nathan Johnson’s Rental Car Reimbursement . . . . . . . . . . . . . . . 41
Should He Pocket the Cash?
3.3 The Anonymous Caller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Recognizing It’s a Fraud and Evaluating What to Do
3.4 WorldCom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
The Story of a Whistleblower
3.5 Hollinger International . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Realities of Audit-Related Litigation
3.6 Wells Fargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65.
Assessing the Impact of Ethical Culture

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 Accounting Fraud and 4 SECTION
Auditor Legal Liability
4.1 Enron Corporation and Andersen, LLP . . . . . . . . . . . . . . . . . . . . 75
Analyzing the Fall of Two Giants
4.2 Comptronix Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Identifying Inherent Risk and Control Risk Factors
4.3 Cendant Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Assessing the Control Environment and
Evaluating Risk of Financial Statement Fraud
4.4 Waste Management, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Manipulating Accounting Estimates
4.5 Xerox Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Evaluating Risk of Financial Statement Fraud
4.6 Phar-Mor, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Accounting Fraud, Litigation, and Auditor Liability
4.7 Satyam Computer Services Limited . . . . . . . . . . . . . . . . . . . . . 129
Controlling the Confirmation Process
4.8 Koss, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135.
The Sounds of a High-Fidelity Fraud

Internal Control over 5 SECTION

Financial Reporting
5.1 Simply Steam, Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
Evaluation of Internal Control Environment
5.2 Easy Clean, Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Evaluation of Internal Control Environment
5.3 Red Bluff Inn & Café . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
Establishing Effective Internal Control in a Small Business
5.4 St. James Clothiers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Evaluation of Manual and IT-Based Sales Accounting System Risks
5.5 Collins Harp Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
Recommending IT Systems Development Controls
5.6 Sarbox Scooter, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
Scoping and Evaluation Judgments in the Audit of Internal
Control over Financial Reporting
5.7 Société Générale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
How a Low-Risk Trading Area Caused a $7.2 Billion Loss
5.8 Oilfields-R-Us, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
Evaluation of Management Review Controls
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SECTION 6 The Impact of
Information Technology
6.1 Town and Country Hardware . . . . . . . . . . . . . . . . . . . . . . . . . 209
Evaluation of Tests of Controls with Automated
Component for the Expenditure Cycle (Purchases)

ADDITIONAL ONLINE CASES

Harley-Davidson, Inc. . . . . . . . . . www.pearsonhighered.com/beasley
Identifying eBusiness Risks and Related Assurance Services for the eBusiness Marketplace
Jacksonville Jaguars . . . . . . . . . www.pearsonhighered.com/beasley
Evaluating IT Benefits and Risks and Identifying Trust Services Opportunities
CASES RELATED TO THIS SECTION
2.1 Your1040Return.com . . . . . . . . . . . . . . . . . . . . . . . . . 23
Evaluating eBusiness Revenue Recognition, Information Privacy,
and Electronic Evidence Issues
5.4 St. James Clothiers . . . . . . . . . . . . . . . . . . . . . . . . . 165
Evaluation of Manual and IT-Based Sales Accounting System Risks
5.5 Collins Harp Enterprises . . . . . . . . . . . . . . . . . . . . . . . 173
Recommending IT Systems Development Controls
5.8 Oilfields-R-Us, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 199
Evaluation of Management Review Controls
9.2 Henrico Retail, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 269
Understanding the IT Accounting System and Identifying Audit Evidence
for Retail Sales

SECTION 7 Planning Materiality

7.1 Anne Aylor, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
Determination of Planning Materiality and Performance Materiality

CASES RELATED TO THIS SECTION

3.6 Wells Fargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Assessing the Impact of Ethical Culture
5.6 Sarbox Scooter, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 177
Scoping and Evaluation Judgments in the Audit of Internal
Control over Financial Reporting
12.1 EyeMax Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . 399
Evaluation of Audit Differences
12.2 Auto Parts, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405
Considering Materiality When Evaluating Accounting Policies
and Footnote Disclosures

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 Analytical Procedures 8 SECTION
8.1 Laramie Wire Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . 237
Using Analytical Procedures in Audit Planning
8.2 Northwest Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
Developing Expectations for Analytical Procedures
8.3 Burlingham Bees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
Using Analytical Procedures as Substantive Tests

CASES RELATED TO THIS SECTION

1.1 Ocean Manufacturing, Inc. . . . . . . . . . . . . . . . . . . . . . . 13
The New Client Acceptance Decision

Auditing Cash, Fair Value, 9 SECTION

and Revenues
9.1 Wally’s Billboard & Sign Supply . . . . . . . . . . . . . . . . . . . . . . . 253
The Audit of Cash
9.2 Henrico Retail, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
Understanding the IT Accounting System and
Identifying Audit Evidence for Retail Sales
9.3 Longeta Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
Auditing Revenue Contracts
9.4 Bud's Big Blue Manufacturing . . . . . . . . . . . . . . . . . . . . . . . 277
Accounts Receivable Confirmations
9.5 Morris Mining Corporation . . . . . . . . . . . . . . . . . . . . . . . . . 289
Auditing Fair Value
9.6 Hooplah, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295
Applying Audit Sampling Concepts to Tests of Controls
and Substantive Testing in the Revenue Cycle
9.7 RedPack Beer Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
Estimating the Allowance for Bad Debts

CASES RELATED TO THIS SECTION

4.7 Satyam Computer Services Limited . . . . . . . . . . . . . . . . . 129
Controlling the Confirmation Process
8.2 Northwest Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
Developing Expectations for Analytical Procedures
8.3 Burlingham Bees . . . . . . . . . . . . . . . . . . . . . . . . . . 247
Using Analytical Procedures as Substantive Tests

vi © 2019 Pearson Education, Inc.

SECTION 10 Planning and Performing Audit
Procedures in the Revenue and
An Audit Simulation
Expenditure Cycles
10.1 Southeast Shoe Distributor, Inc. . . . . . . . . . . . . . . . . . . . . . . 315
Identification of Tests of Controls for the Revenue Cycle
(Sales and Cash Receipts)
10.2 Southeast Shoe Distributor, Inc. . . . . . . . . . . . . . . . . . . . . . . 333
Identification of Substantive Tests for the Revenue Cycle
(Sales and Cash Receipts)
10.3 Southeast Shoe Distributor, Inc. . . . . . . . . . . . . . . . . . . . . . . 343
Selection of Audit Tests and Risk Assessment for the Revenue Cycle
(Sales and Cash Receipts)
10.4 Southeast Shoe Distributor, Inc. . . . . . . . . . . . . . . . . . . . . . . 351
Performance of Tests of Transactions for the Expenditure Cycle
(Acquisitions and Cash Disbursements)
10.5 Southeast Shoe Distributor, Inc. . . . . . . . . . . . . . . . . . . . . . . 371
Performance of Tests of Balances for the Expenditure Cycle
(Acquisitions and Cash Disbursements)

SECTION 11 Developing and Evaluating

Audit Documentation
11.1 The Runners Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383
Litigation Support Review of Audit Documentation for Notes Payable

CASES RELATED TO THIS SECTION

9.1-6 Section 9: Auditing Cash, Fair Value, and Revenues . . . . . . . . 253
Various Cases
10.1-5 Section 10: Southeast Shoe Distributor, Inc. . . . . . . . . . . . . 315
An Audit Simulation

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 Completing the Audit, 12 SECTION
Reporting to Management,
and External Reporting
12.1 EyeMax Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399
Evaluation of Audit Differences
12.2 Auto Parts, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405
Considering Materiality When Evaluating Accounting Policies
and Footnote Disclosures
12.3 K&K, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407
Leveraging Audit Findings to Provide Value-Added Insights
in a Manufacturing Environment
12.4 Surfer Dude Duds, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413
Considering the Going-Concern Assumption
12.5 Murchison Technologies, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 417
Evaluating an Attorney’s Response and
Identifying the Proper Audit Report
12.6 Going Green . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423
Sustainability and External Reporting

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 A LPH AB E TI C C AS E I ND E X

7.1 Anne Aylor, Inc. . . . . . . . . . . . . . . . . . . 223 5.8 Oilfields-R-Us, Inc.. . . . . . . . . . . 199

3.3 Anonymous Caller, The . . . . . . . . . . . . . . 43 1.1 Ocean Manufacturing, Inc. . . . . . . . 13
2.2 Apple Inc. . . . . . . . . . . . . . . . . . . . . . . 27 4.6 Phar-Mor, Inc. . . . . . . . . . . . . . 117
2.3 Asher Farms, Inc. . . . . . . . . . . . . . . . . . . 31 5.3 Red Bluff Inn & Café . . . . . . . . . . 163
12.2 Auto Parts, Inc. . . . . . . . . . . . . . . . . . . 405 9.7 RedPack Beer Company . . . . . . . . 305
9.4 Bud's Big Blue Manufacturing. . . . . . . . . . 277 11.1 Runners Shop, The . . . . . . . . . . . 383
8.3 Burlingham Bees . . . . . . . . . . . . . . . . . 247 5.6 Sarbox Scooter, Inc. . . . . . . . . . . 177
4.3 Cendant Corporation . . . . . . . . . . . . . . . 95 4.7 Satyam Computer Services Limited . 129
5.5 Collins Harp Enterprises . . . . . . . . . . . . . 173 5.1 Simply Steam, Co. . . . . . . . . . . . 147
4.2 Comptronix Corporation . . . . . . . . . . . . . 87 5.7 Société Générale . . . . . . . . . . . . 191
3.1 Day in the Life of Brent Dorsey, A . . . . . . . . 37 10.1 Southeast Shoe Distributor, Inc.:
Tests of Controls for
5.2 Easy Clean, Co. . . . . . . . . . . . . . . . . . . 155 the Revenue Cycle . . . . . . . . . 315
4.1 Enron Corporation and Andersen, LLP . . . . . . 75 10.2 Southeast Shoe Distributor, Inc.:
Substantive Tests for
12.1 EyeMax Corporation . . . . . . . . . . . . . . . 399
the Revenue Cycle . . . . . . . . . 333

Flash Technologies, Inc. . .www.pearsonhighered.com/Beasley
10.3 Southeast Shoe Distributor, Inc.:
12.6 Going Green . . . . . . . . . . . . . . . . . . . . 423 Audit Tests and Risk Assessment
for the Revenue Cycle . . . . . . . . 343

Harley-Davidson, Inc. . . www.pearsonhighered.com/Beasley
10.4 Southeast Shoe Distributor, Inc.:
9.2 Henrico Retail, Inc. . . . . . . . . . . . . . . . . 269 Tests of Transactions for the
Expenditure Cycle . . . . . 351
3.5 Hollinger International . . . . . . . . . . . . . . 53 . . . .

9.6 Hooplah, Inc. . . . . . . . . . . . . . . . . . . . 295 10.5 Southeast Shoe Distributor, Inc.:

Tests of Balances

Jacksonville Jaguars . . www.pearsonhighered.com/Beasley for the Expenditure Cycle . . . . . . 371

12.3 K&K, Inc.. . . . . . . . . . . . . . . . . . . . . . 407 5.4 St. James Clothiers . . . . . . . . . . 165

4.8 Koss, Inc.. . . . . . . . . . . . . . . . . . . . . . 135 12.4 Surfer Dude Duds, Inc. . . . . . . . . 413
8.1 Laramie Wire Manufacturing . . . . . . . . . . 237 6.1 Town and Country Hardware. . . . . 209
9.3 Longeta Corporation . . . . . . . . . . . . . . . 273 9.1 Wally’s Billboard & Sign Supply . . . 253
9.5 Morris Mining Corporation . . . . . . . . . . . 289 4.4 Waste Management, Inc. . . . . . . . 101
12.5 Murchison Technologies, Inc. . . . . . . . . . . 417 3.6 Wells Fargo . . . . . . . . . . . . . . . . 65
3.2 Nathan Johnson’s 3.4 WorldCom. . . . . . . . . . . . . . . . . 47
Rental Car Reimbursement . . . . . . . . . . . . 41
4.5 Xerox Corporation . . . . . . . . . . . 109
8.2 Northwest Bank . . . . . . . . . . . . . . . . . . 241
2.1 Your1040Return.com . . . . . . . . . . 23

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 PR E FAC E
Auditing Cases: An Interactive Learning Approach provides exposure to real-world audit techniques
and hands-on learning for students in both undergraduate and graduate auditing courses. This Seventh
Edition continues our tradition of providing a rich learning experience for students that challenges them
to apply knowledge learned in the classroom and from traditional auditing textbooks so they can develop
skills to complete tasks they will be asked to do once they enter the accounting and auditing profession.

NEW CASES TO THE SEVENTH EDITION

The Seventh Edition continues to feature a variety of cases that address different aspects of the audit. Some are
based on real companies, while others are disguised as “hypothetical companies” in order to provide a “surprise
element” once they are completed. Additional cases include examples of client system documentation and audit
workpapers that students prepare and evaluate as if they are on a current audit team.

CA S E 3.6 Wells Fargo

Assessing the Impact of Ethical Culture
This case features the alleged inappropriate sales culture at Wells Fargo Bank that
ultimately led to the CEO’s 2016 testimony in front of the U.S. Senate Banking
Committee and his subsequent resignation. The bank’s audit firm was challenged to
defend its work by four U.S. Senators, one of whom included Bernie Sanders, a recent
candidate for U.S. President.

CA S E 4.8 Koss, Inc.

The Sounds of a High-Fidelity Fraud
This case gives students a “bird's-eye” view of the 9th-largest embezzlement fraud in
U.S. history, which took place at the Koss Corporation, headquartered in Wisconsin. The
case vividly illustrates what can happen when internal control over financial reporting
(ICFR) is lax at a public company. The case will be particularly interesting for students
because much of the story of this massive defalcation fraud is introduced through the
words of the company’s CEO and the individual who stole $34 million from the company,
adapted from deposition statements. The case brings to life the importance of effective
ICFR, with an emphasis on the Control Environment, and introduces students to the
role that accountants can play as expert witnesses in court cases.

CA S E 5.8 Oilfields-R-Us, Inc.

Evaluation of Management Review Controls
This case introduces students to management review controls (MRCs), an increasingly
important topic in practice for both management and auditors. In a MRC, members
of management review key information and evaluate reasonableness by comparing it
to expected value, such as budget-to-actual comparisons and review of accounting
estimates. This case helps students appreciate the importance of the effective design
and execution of MRCs, and it highlights some of the challenges of evaluating their
effectiveness in audits of internal control over financial reporting.

© 2019 Pearson Education, Inc. xi

 Town and Country Hardware
Evaluation of Tests of Controls with Automated 6.1 C A S E
Component for the Expenditure Cycle (Purchases)
This case introduces students to internal controls with an automated component that
are an increasingly important topic in the practice for both management and auditors.
This case helps students appreciate the challenges of evaluating the effectiveness of
internal controls over financial reporting with an automated component.

ADDITIONAL NEW FEATURES OF THE SEVENTH EDITION

Reflects Recent Auditing Standards
This edition includes updates that reflect new auditing standards issued by the AICPA’s Auditing Standards
Board (up through SAS No. 132, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern)
and the PCAOB’s Auditing Standards (up through AS 3101, The Auditor’s Report on an Audit of Financial Statements
When the Auditor Expresses an Unqualified Opinion). When relevant, questions expose students to new guidance
contained in recently issued auditing standards.

Updated and Re-ordered Materials and Questions

Many of the case questions have been restructured to change the nature of the topics addressed and to expose
students to different issues from those examined in prior editions. Many cases also have reordered questions.
Dates in hypothetical cases have been set in calendar year 2018 with audit procedures performed on the 2017
fiscal year information and/or interim procedures performed on the 2018 fiscal year information. When
appropriate, we have changed underlying data in some of the hypothetical cases so that the cases differ from
prior editions. All of these changes reduce the potential benefit of students seeking our solutions from prior
editions of the casebook. Further, students who inappropriately access and use solutions to prior editions are
more likely to be detected by the instructor.

SOLVING TEACHING AND LEARNING CHALLENGES

Auditing educators continue to look for opportunities to increase their emphasis on the development of students’
professional judgment, critical thinking, communication, and interpersonal relationships skills. Development of
these skills requires a shift from passive instruction to active involvement of students in the learning process.
Unfortunately, current course materials provided by many publishers are not readily adaptable to this kind of
active learning environment, or they do not provide materials that address each major part of the audit process.
The purpose of this casebook is to give students hands-on exposure to realistic auditing situations focusing
specifically on each aspect of the audit process.

Over 50 Cases Spanning the Audit Processes

This casebook contains a collection of 50 auditing cases plus a separate learning module about professional
judgment that allows the instructor to focus and deepen students’ understanding in each of the major activities
performed during the conduct of an audit. These cases expose students to aspects of the audit spanning from
client acceptance to issuance of an audit report, with a particular focus on how professional judgment is applied
throughout the audit. Each case is primarily assigned to one of 12 identified aspects of an audit; however, a
number of cases address more than one topic. As a result, cases are cross-referenced in the Table of Contents so
that instructors can easily pinpoint how a particular case might be useful to address different audit topics. The
following Table of Contents Overview provides the number of cases for each of the 12 topics.
xii © 2019 Pearson Education, Inc.
Table of Contents Overview
Primary Cross-referenced Bonus Online
Section / Audit Topic
Cases Cases Cases*
1 Client Acceptance 1
2 Understanding the Client’s Business and
3 1
Assessing Risks
3 Professional and Ethical Issues 6
4 Accounting Fraud and Auditor Legal Liability 8 1
5 Internal Control Over Financial Reporting 8 2
6 The Impact of Information Technology 1 5 2
7 Planning Materiality 1 4
8 Analytical Procedures 3 1
9 Auditing Cash, Fair Value, and Revenues 7 3
10 Planning and Performing Audit Procedures in
5
the Revenue and Expenditure Cycles
11 Developing and Evaluating Audit
1 2
Documentation KPMG Professional Judgment Framework
12 Completing the Audit, Reporting to
6
in the figure below, you will see the KPMG Professional
Management, and External Reporting Judgment Framework. the Framework includes a number of
components, such as mindset, consultation, knowledge and
Total Cases 50 influences and biases,
professional standards, 18 reflection, and 3
coaching. at the core of the Framework, you will see a five-step
*In addition to the 50 cases included in the book, three additional cases
judgment from prior editions can be accessed via the casebook website
process.
(www.pearsonhighered.com/Beasley). Thus, there are 53 different case options available for use!

The KPMG Professional Judgment Framework

Module on Professional Judgment
The casebook includes a Learning Module on
ENVIRONMENT
Professional Judgment that exposes students
Influences/Biases
to a professional judgment framework and
outlines a framework of good judgment as Coaching
Reflect on Previous Reflect on
Coaching
well as a number of judgment tendencies Experience Lessons Learned

and traps that can introduce bias into the

5 1
judgment process. Because professional articulate & Clarify

judgments are required throughout the entire Document

Rationale
Mindset
issues &
Objectives

audit process, from client acceptance to

report issuance, we include an Introduction 4 Co 2
nsultatio
n

Reach Consider

to Professional Judgment as an upfront Conclusion

3
alternatives

learning module rather than as an individual Gather &

Evaluate

case. We encourage students to complete information

this learning module early in their auditing Strategies for Avoiding Traps and Mitigating Bias

course to expose them to the fundamentals Knowledge/Professional Standards

of professional judgment, which they can use
Reprinted from the KPMG Professional Judgment Framework: Elevating Professional Judgment in Auditing with
as they complete the required professional permission from KPMG LLP. © 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member
judgment questions in many of the cases thefirm
steps
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the KPMG Professional Judgment Framework provides a good
questions are separately highlighted in gray- representation of the process we should follow when applying
shaded sections of the Requirements section.
© 2019 Pearson Education, Inc. xiii
 In-Class and Out-of-Class Assignments
FLIPPED While all of the cases can be assigned for completion as an outside-
of-class assignment, several of the cases are designed so that they
CLASSROOM can be easily used as an in-class learning opportunity. The
Instructor’s Resource Manual provides several ideas of how many of
the cases can be easily incorporated as an in-class activity, which should
be especially helpful for instructors who have “flipped” their classes.

Real-World Application
Each case presents a number of audit related issues and decisions that help students apply their audit knowledge
and skills to real-world scenarios. A number of the cases are based on actual situations involving real
companies. Others are hypothetical cases that disguise the innocent.

DEVELOPING SKILLS FOR THE PROFESSION

For students to succeed in a rapidly changing accounting and auditing profession, they need to be skilled at
thinking critically and analytically, while remaining open and flexible to life-long learning and development.
Auditing Cases: An Interactive Learning Approach provides an effective platform to help students build a strong
toolkit of skills that will increase their career success. Here are some of the ways this casebook helps strengthen
their abilities for careers in the accounting and auditing profession.

Critical Thinking
All of the cases present realistic issues and challenges that auditors face every day in the
engagements they perform. Because of that, each case presents scenarios that require
students to think critically about identifying the issue at hand and then determining how
to respond in a way that would be appropriate in an audit engagement setting. Many of
the cases present dilemmas that highlight the realities of the complexities students will
face when in their professional careers. Completion of these cases will help students
develop and mature their critical thinking and analytical skills.

Hands-on Application
All cases engage students in applying their knowledge and skills in a hands-on learning
environment. For some cases, students review client generated documentation,
complete actual audit program procedures, and prepare and evaluate audit working
papers. Other cases require students to conduct Internet based research similar to what
might be required in an audit to locate guidance in professional standards or to access
relevant financial statement filings with the U.S. Securities and Exchange Commission.

Communication Skills
A number of the cases require students to prepare written responses in memorandum
or report format. The Instructor’s Resource Manual contains a number of different ideas
for structuring assignments to have students develop their written communication skills.

Team-Based and Individual Assignments

All of the cases are designed so that students can complete them either in teams or
individually. The Instructor’s Resource Manual contains a number of different suggestions
for assigning the cases as group or individual assignments.

Photo Credit: Creative Stall/Shutterstock

xiv © 2019 Pearson Education, Inc.
 INSTRUCTOR TEACHING RESOURCES
The accompanying Instructor Resource Manual clearly illustrates the different instructional approaches available
for each case (e.g., examples of cooperative/active learning activities and/or out-of-class individual or group
assignments) and efficiently prepares the instructor for leading interactive discussions. The Instructor Resource
Manual contains rich solutions to help instructors pinpoint the relevant issues that are the focus of each of the
cases. To access this manual, log on to:
www.pearsonhighered.com/Beasley
We are pleased to provide this updated Seventh Edition and hope that the professional skills of your students
will be enhanced through completion of cases contained within this edition.

ACKNOWLEDGEMENTS
The authors appreciate the assistance of Brant Christensen and Jacob Smith in assembling materials for some
of the cases. We also want to express our sincere gratitude to Jonathan Liljegren for his incredible work in the
design and assembly of the entire casebook and instructor resources. We are grateful for his professionalism
and eye for detail. Finally, we thank our families who are always supportive of our efforts and who allow us to
pursue these kinds of creative opportunities.

ABOUT THE AUTHORS

Mark S. Beasley, PhD, CPA
Mark Beasley is the Deloitte Professor of Enterprise Risk Management
and Professor of Accounting in the Poole College of Management at North
Carolina State University. He has taught undergraduate and graduate auditing
courses and has received several teaching awards including membership in NC
State’s Academy of Outstanding Teachers. He has extensive professional audit
experience with the predecessor firm to EY and has extensive standards-setting
experience with working with the Auditing Standards Board as a Technical
Manager in the Audit and Attest Division of the AICPA. He served over seven
years as a member of the COSO Board, representing the AAA. He has co-
authored over 90 articles, books, and research monographs.

Frank A. Buckless, PhD

Frank Buckless is the KPMG Professor and Department Head of Accounting
in the Poole College of Management at North Carolina State University. He
has taught undergraduate and graduate auditing and currently trains audit
professionals with KPMG. He also has been a co-instructor for the Audit
Section’s Audit Educator’s Bootcamp. Frank worked professionally as an
auditor with Arthur Andersen & Co. He has authored numerous articles and
books and was the 2016 recipient of the American Accounting Association’s
Innovation in Accounting Education Award.

© 2019 Pearson Education, Inc. xv

 Steven M. Glover, PhD, CPA
Steve Glover is the K. Fred Skousen Professor and Associate Dean of the
Marriott School of Management at Brigham Young University. He has taught
undergraduate and graduate auditing courses and graduate courses on a
judgment and decision-making. Steve has significant audit experience with
KPMG and PwC and he continues to consult with public accounting firms
and as a subject matter expert in litigation and restatements. Steve is on the
Auditing Standards Board of the AICPA and is past President of the Auditing
Section of the American Accounting Association (AAA). Steve has published
numerous articles and books and is a co-author on leading monographs,
including Elevating Professional Judgment in Auditing and Accounting: The KPMG
Professional Judgment Framework, which received the AAA Deloitte/Wildman
Medal award recognizing the published work making the most significant
contribution to the advancement of the practice of public accountancy over a
period of 5 years.

Douglas F. Prawitt, PhD, CPA

Doug Prawitt is the McAllister/Deloitte Professor of Accountancy at BYU.
His research and teaching in BYU’s graduate accounting and MBA programs
focus on financial statement auditing and professional judgment. Doug has
published award-winning articles in top practice journals and has co-authored
two leading auditing textbooks. His research has been published in premier
academic journals, including The Accounting Review, Journal of Accounting Research,
and Contemporary Accounting Research. Doug has won several research, teaching,
and "best research paper" awards, including the 2013 AAA/Deloitte Wildman
Medal Award recognizing the publication over a five-year time span most likely
to positively impact the public accounting profession, the 2016 BYU Marriott
School Outstanding Faculty Award, and the American Accounting Association’s
2016 Outstanding Accounting Educator Award. Doug is active in the profession,
having served a three-year term as a member of the AICPA’s Auditing Standards
Board, and currently serves as a member of the COSO Board. He also serves as
an expert witness in high-profile auditing cases and consults with a variety of
professional services firms, large and small.

xvi © 2019 Pearson Education, Inc.