Case Assignment: The Audit of SSM
Background
Steve's Shoe Makers Inc. (SSM), a company that is publicly traded on the New York Stock Exchange, manufactures and distributes high-performance athletic footwear and apparel. Established in Philadelphia in 2000 as a small, family-owned business, SSM has expanded to include a wholly owned subsidiary, Steve's Shoes LLC. SSM's corporate management is based in Philadelphia, and the manufacturing and distribution plants are located in Houston and Los Angeles.
You have been hired as SSM's external auditor and have been assigned to test SSM's related parties and its relationships and transactions with related parties in accordance with PCAOB AS 2410 (formerly PCAOB AS 18).
You have spoken with SSM's CEO, Dain Blanton, who believes that the processes and controls in place at SSM would result in the identification of any related-party relationship that would require further investigation or possible disclosure in the financial statements. Further, he has stated that the company does not have any related-party events or transactions that would need to be disclosed in the current-year annual financial statements in accordance with ASC 850.
Required
1. In accordance with paragraphs .05-.07 of PCAOB AS 2410 (formerly PCAOB AS 18), auditors are required to inquire of the audit committee, management, and others in the company regarding their knowledge of related parties and relationships and transactions with related parties. Use SSM's organizational chart in the appendix below as a resource to identify others in the company who you would consider asking about such knowledge. Explain your rationale for selecting these individuals.
2. Are management's processes and controls over related parties and over related-party relationships and transactions sufficient? Why or why not?
3. Given the need for management to identify, authorize and approve, and account for and disclose its related parties and its relationships and transactions with related parties, what are the types of processes and control activities that management should consider?
4. Given the requirement in paragraph .14 of PCAOB AS 2410 (formerly PCAOB AS 18), what procedures would you perform to test the accuracy and completeness of the related-parties listing and of relationships and transactions with related parties?
5. What would be the implications on the audit if an undisclosed related-party transaction was identified during the completion of audit testing?
Attachment:- The-Audit-of-SSM.pdf