Case Assignment: In a minimum of 850-words paper, respond to Case attached to this assignment page. Ensure that your paper is organized and formatted to APA 6th edition. Minimum: 1 reference Case 16-

Case Assignment:

In a minimum of 850-words paper, respond to Case attached to this assignment page.

Ensure that your paper is organized and formatted to APA 6th edition.

Minimum: 1 reference 

Case 16-1

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.

See the appendix below for SSM’s organizational structure.

Management’s Processes and Controls

To understand management’s processes and controls over related parties and its

relationships and transactions with them, you obtain SSM’s relevant process flow

narrative from management, which states the following:

Before hiring a new employee, the human resources manager performs a

background check. Employees hired for management positions must disclose their

significant ownership interests. SSM’s legal department maintains a listing of

these disclosures (“related-parties listing”) and periodically checks the disclosed

relationships against SSM’s vendor and customer master file. Annually, before

SSM files its 10-K, management signs representations indicating that to the best

of its knowledge, SSM did not enter into any related-party transactions that were

not disclosed in the financial statements. Management also discloses any changes

in its significant equity ownership or investments at this time. A review of the

representations is performed by the legal department, the related-parties listing is

updated for any new related parties identified, and the records are maintained in a

locked room.

Risks of Material Misstatement

As a result of the risk-assessment procedures performed, you have determined that the

risks of material misstatement listed below apply to the audit of SSM. You have also determined that none of the identified and assessed risks of material misstatement are

significant risks. (Note that there are additional risks of material misstatement regarding

related parties and relationships and transactions with related parties; however, this case

study only focuses on the risks outlined below.)

R_RP_1: Related parties and transactions with related parties may not be appropriately

identified.

R_RP_2: Related-party transactions are not recorded in accordance with applicable

accounting standards.

R_RP_3: Related-party transactions are recorded:

• For transactions that did not occur or are pending.

• At incorrect amounts.

• In the incorrect period.

R_RP_4: Related-party transactions are recorded:

• For transactions that lack a business purpose.

• Without taking into account the counterparty’s financial capability.

R_RP_5: The related-party disclosure includes transactions that:

• May not have occurred.

• Lack a business purpose.

• Are not recorded on terms equivalent to those prevailing in an arm’slength transaction and are not disclosed as such.

R_RP_6: The related-party disclosure does not sufficiently describe related-party

transactions in accordance with the applicable financial reporting framework.

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 relatedparty 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? 

Entity Organizational Chart

Steve's Shoes LLC

Houston, TX

Steve's Shoes LLC

Los Angeles, CA

Steve's Shoes LLC

SSM Corporate

Philadelphia, PA

Management Organizational Chart

SSM Management

Na Li

Sales and Marketing Manager

Sybil Newell

Chief Operating Officer

Lars Frolander

Chief Financial Officer

Helen Volk

Human Resources Manager

Ken Briggs

Director of Payroll

Jonathan Edwards

Director of Legal Department

Dain Blanton

Chief Executive Officer

SSM Board of Directors

SSM Accounting and Finance

Suni Park

Payroll Clerk

Tina Parshin

Payroll Manager

Neil Walker

Data Center Mgr

Pia Hansen

Programming Mgr

Gete Wami

Network Mgr

Mounir Sabet

Information Systems Officer

Steffi Jones

A/P Clerk

*Multiple Other

A/P Clerks*

Juan Perez

A/P Supervisor

Multiple

Accounting

Clerks

Maree Fish

Payroll Supervisor

Sara Harstick

Accounting Mgr

Angela Tamas

A/R Clerk

*Multiple Other

A/R Clerks*

Denis Kapustin

A/R Supervisor

Wei Lang

Credit Controller

Randhir Singh

Reporting Mgr

Ashley Callus

Financial Controller

Multiple

Internal

Auditors

Hector Mendez

Internal Audit

Manager

Lars Frolander

Chief Financial Officer

SSM Operations

See Distribution

Dept in Separate

Org Chart

Syed Ali

Distribution Manager

Multiple

Line

Supervisors

Bronwyn Mayer

Prod Supervisor

Alex Giladay

Houston Plant Mgr

Multiple

Line

Supervisors

Hughes Obry

Prod Supervisor

Annie Famose

Los Angeles Plant Mgr

Andre Willms

Production Manager

Multiple

Purchasing Clerks

Linda Thom

Houston Purchasing

Supervisor

Multiple

Purchasing Clerks

Robert Lane

Los Angeles Purchasing

Supervisor

Penelope Heyns

Purchasing Manager

Sybil Newell

Chief Operating Officer