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University of Nebraska- Lincoln

Accounting 831

Seminar in Auditing

Fall 2014

Instructor: Scott Seavey, Ph.D., CPA

Office: 391 CBA

Office Phone: (402) 472-7541

E-mail: sseavey2@unl.edu (preferred method of communication)

Office Hours: T, Th 1-2:30 p.m., W 1-2:30, & by appointment

1. COURSE MATERIALS

Any required readings, cases, or other handouts will be provided. I do recommend that you get

your hands on an undergraduate auditing text for reference, but it is not required.

2. COURSE DESCRIPTION AND OBJECTIVES

This course is an advanced course in auditing. Given my area of interest and the fact that many

of you will enter public accounting upon graduation, the course will primarily be focused on

audits of financial statements. (Hopefully!) You will integrate the knowledge acquired in your

undergraduate auditing principles and other courses, with readings from current professional

literature, empirical research, and case studies to form and communicate judgments about

complex audit issues. The course materials are designed to help you:

1. Improve your analysis, problem-solving, research, and decision-making skills.

2. Develop the skills, competencies, and professional judgment accounting professionals

(and everyone else!) require(s).

3. Understand and appreciate the role of the economic, regulatory, and technology

environment in auditors decision making (i.e., the role of auditors).

4. Learn to find and use auditing resources to resolve audit issues (i.e., do some research).

5. Enhance your ability to work in teams.

6. Develop the ability to communicate concepts orally and in writing.

7. Understand current issues in auditing.

8. Gain greater understanding of the audit process.

This is not a knowledge-based course that teaches you facts and basic concepts. You will not be

assessed on what you know, there are no formal exams in this class, and you will never see

anything remotely resembling multiple choice. On the contrary, this is a discussion-based course

designed to push the boundaries of your ability to think critically about different issues. From

that standpoint, the goal of this class is not to teach you debits and credits or help you pass the

CPA exam, but rather, to get you to think.

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3. GRADES

Grading will be based on the following percentages:

Written Assignments (presentations, reports, case solutions) 35

Mid-term Exam 20

Final Exam 25

Participation 20

Total Percentage 100

Grading details are presented at the end of this syllabus.

4. WEEKLY ASSIGNMENTS

Each week we will discuss and then have an assignment on a topic of current interest in the

auditing world. The discussion and assignments are designed to:

1) Introduce you to the issue and explore, where applicable, how standard setters have

addressed the subject. This will involve some lecture time as well as in-class discussion.

2) Provide you with a tangible understanding of the issue through cases and other exercises.

Sometimes the best way to understand a problem is to work through it yourself.

3) Raise your awareness of what auditors are actually doing in the field by reading some

basic academic research papers.

For example, at the end of the first class we will discuss the process by which auditors accept

new clients, including guidance from Auditing Standards. I have then assigned for the second

week, two research articles surveying what auditors actually do in practice, as well as a case

whereby you need to analyze a firm and decide whether or not to accept a specific client. We

will then spend most of the second class period discussing the articles and case study. The goal is

that at the end of the process you should have a well-rounded understanding of the client

acceptance process.

That sounds like a lot of work each week, doesnt it? Well, yes, yes it is. You are a graduate

student now. My expectations of you are considerably higher than they are for undergraduates;

meaning more work, and work that is more complicated.

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Date Topic and Assignment

Aug 27 Introduction / Review Syllabus / Switching Auditors and Client Acceptance

No Assignment

Sept 03 Switching Auditors and Client Acceptance

Research Paper 1: Ethridge, J., T. Marsh, and B. Revelt. 2007. Engagement risk: Perceptions

and strategies from audit partners. Journal of Business & Economic Research 5 (4): 25-32.

Research Paper 1a: Gendron, Y. 2001. The difficult client-acceptance decision in Canadian

audit firms: A field investigation. Contemporary Accounting Research 18 (2): 283-310.

Case 1: Ocean Manufacturing, Inc.

Sept 10 Understanding Client Business and Assessing Client Risk

RP 2: Erickson, M., B. Mayhew, and W. Felix. 2000. Why do audits fail? Evidence from

Lincoln Savings and Loan. Journal of Accounting Research 38 (Spring): 165-194.

Case 2: Company analysis and class presentation companies will be assigned.

Sept 17 Materiality

RP 3: Messier, W., N. Martinov-Bennie, and A. Eilifsen. 2005. A review and integration of

empirical research on materiality: Two decades later. Auditing: A Journal of Practice and

Theory 24 (2): 153-187.

Case 3: Return to Week 3!

Sept 24 Internal Control over Financial Reporting

Case 4a: Zous Fencing Controls (in-class) Case 4b: Return to Week 4!

Oct 01 Analytical Procedures

RP4: Tropmeter, G., and A. Wright. 2010. The world has changed have analytical procedure practices? Contemporary Accounting Research, 27 (2): 669-700.

Case 5a: Laramie Wire Manufacturing, in-class case

Case 5b: Return to Week 5!

Oct 08 Auditing Revenue and Sample Selection

RP5: Christensen, B., R. Elder, and Steven Glover. 2013. Behind the numbers: Insights

into large audit firms sampling approaches. Working paper, Texas A&M University.

Case 6: Making Connections

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Oct 15 Mid-Term, In-class.

Oct 22 Auditing Fair Value

Case 7: Fair Value Hierarchy

Oct 29 Audit Regulations

Case 8: Discussion piece.

Nov 05 The Role of Auditing in the Broader Economy

RP6a: Tricker, B. Where were the auditors? Blog post at,

http://corporategovernanceoup.wordpress.com , February 18, 2009.

RP6b: Pinnuck, M. 2012. A review of the role of financial reporting in the global financial

crisis. Australian Accounting Review, 60 (1): 1-14.

RP6c: Sikka, P. 2009. Financial crisis and the silence of the auditors. Accounting,

Organizations and Society, 34: 868-873.

Case 9: Discussion piece

Nov 12 Going Concern Audit Opinions

RP7a: Blay, A., et al. 2011. The auditors going-concern opinion as a communication of risk. Auditing, A Journal of Practice and Theory, 30 (2): 77-102.

RP7b: Carson, E., N. Fargher, M. Geiger, C. Lennox, K. Raghunandan, and M. Willekens.

2012. Auditor reporting on going-concern uncertainty: A research synthesis. Working paper.

Case 10: Going, Going, Gone

Nov 19 Fraud/Ethics

Case 11: Return of the Tallahassee BeanCounters

Nov 26 No Class: Thanksgiving Break

Dec 03 Fraud/Ethics

Case 11: Return of the Tallahassee BeanCounters

Dec 10 International Financial Reporting Standards (IFRS)

Case 12: Provision and Contingencies

Discussion piece

Dec 17 Take-Home Final Exam due by 5 p.m. (note this is Wednesday of exam week)

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5. GENERAL INSTRUCTION FOR WRITTEN ASSIGNMENTS AND EXAMS

Cases:

I will hand-out/post on Blackboard instructions specific to each case no less than one week prior to the

date due. Cases are due in class (do not email them to me) and late cases are not accepted. Cases should

be typed and double-spaced using Times New Roman 12-point font with 1 page margins. For each case,

create a cover page with the case name and your own name. Put your name only on the cover page so

they can be graded blind. Page lengths are specified for each case and will be strictly enforced. Be

succinct and to the point in your writing. Use a crisp business style of writing. Imagine you are writing a

research report for an employer, which means a formal report style (no colloquialisms or slang). Do not

repeat the question in your answer. Your report should make clear what you are doing/analyzing. Do not

simply summarize, reiterate facts or quote from the cases as your primary form of analysis. Your

job is to analyze and interpret facts presented in the cases, not just to repeat them!

Unless otherwise noted, you may work on the cases in self-selected teams of two. It is not required and

can change from week-to-week depending on your preference. If you do chose to work with a partner,

only hand-in one copy of the assignment, with an additional statement on the cover page signed by both

team members attesting to the portion of work done by each; e.g., We each performed 50% of the

required work for the case.

When the case description is Discussion piece that means I will assign a thought experiment for the

week. For those cases you will be required to present an idea and provide convincing support. More to

come on that as we get closer to those weeks.

Research Papers:

Due in class (do not email them to me) and late papers are not accepted. Your written analysis of the

assigned research papers is to guide our discussion of the paper, and therefore is not required to be as

formal as the written cases. They should be typed and single-spaced using Times New Roman 12-point

font with 1 page margins. Maximum of 2 pages, but less is better. Be succinct.

For your analysis, unless otherwise noted answer the following questions:

What question is the study trying to answer (i.e., what is the research question)?

Why should we care about the study?

What do the authors predict they will find and how do they motivate their predictions?

(note: not all of the papers have formal predictions that they are testing)

How do the authors test their predictions?

What are the primary results of the study?

What do the authors conclude about their findings?

Mid-term Exam:

The Mid-term Exam will be an in-class, blue-book essay exam based on the material covered to that

point. It will not be fun. We will discuss the exam as we get closer to that ominous week!

Final Exam:

The Final Exam will be a take-home assignment. I will hand out instructions near the end of the semester.

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6. OTHER ODDS AND ENDS YOU NEED TO BE AWARE OF

A note on cheating: Obviously, cheating is not acceptable in this class. All aspects of the honor

system apply to this course. By becoming a member of this class, you are demonstrating an

interest in a profession that is distinguished by its integrity and objectivity. I will strive to

maintain these ideals at all times and the students will be expected to do the same.

If you are caught/suspected of cheating you will meet with me to discuss conduct. If suspicion

warrants, you will fail the course and a letter will be sent to the MPA Committee Chair, Director

of the School of Accountancy, Assistant Dean of CBA, and the Dean of Students. Finally, you

will be expelled from the University.

Academic dishonesty (cheating) includes, but is not limited to:

Copying or attempting to copy (in whole or part) from another students assignment.

Allowing another student to copy or attempt to copy (in whole or part) from your assignment.

Copying from solutions manual (by hand or electronically).

Using or attempting to use unauthorized materials or notes during and exam or quiz.

Sharing information during exam or quiz.

Copying from or unauthorized sharing of homework assignments. For additional information, please refer to the Office of Graduate Studies at:

http://www.unl.edu/gradstudies/current/integrity#about

UNL Policies: I follow all UNL policies concerning students with disabilities, non-

discrimination in the classroom, and any other matters. Please see the student handbook or UNL

web-site for additional information.

Caveat: Anything and everything in this syllabus is subject to change at my discretion. It has

been my experience that this class changes throughout the semester based on my changing

interests, what current events are being discussed in the audit world, and what I think may be

helpful, and interesting, for you. So expect things to change from the posted schedule.

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7. HOW I CALCULATE GRADES

Its difficult for me to separate the quality of work for cases and research papers beyond a simple

parsing by letter grades. That is, there is no practical method for me to assign anything other

than letter grades A through F (hm, hopefully there are none of the latter).

There are two primary reasons for this:

1) You all are at the right side of the grade distribution anyway by nature of successfully entering

the MPA program, and so are pretty tightly bunched in your abilities (i.e., youre all good

students and thus the distribution is tall, thin, and on the right side to begin with I think thats

technically a leptokurtic curve with a negative skew, for you stats nerds).

2) The assignments I require dont necessarily have right and wrong answers, but are instead

subjective, and my assessment of your writings must also therefore be subjective. That doesnt

lend to being able to assign one student a 91% and a second student at, say, 92%.

Ok, enough of that. So heres how I calculate grades for this class:

1) I grade each assignment using a scale of 0 through 5 with a 5 = A, 4 = A-, 3 = B+, 2 = B,

1 = B-, and 0 = you need to come see me. Each assignment is worth the same so at the

end of the semester I calculate the average grade for your assignments.

2) I grade participation in the same fashion (see separate guidelines for how I assign

participation grades). Starting after week 8 you may inquire as to your participation

grade up to that point.

3) The mid-term and final exams will be the same, graded on a scale of 0 5.

4) To calculate the final grade I simply do a little math:

Average assignment grade * 0.35 + Mid-term exam * 0.2 + Final exam * 0.25

+ Participation * 0.2 = Final grade

I apply the following parameters to determine the final letter grade:^^

4.5 5.0 = A 1.5 2.4 = B

3.5 4.4 = A- 0.5 1.4 = B-

2.5 3.4 = B+

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8. PARTICIPATION GUIDELINES

Participation is graded on a scale of 0 5, with 5 = A, 4 = A-, 3 = B+, 2 = B, 1 = B-, and 0 = C+ and is 20 percent of your grade.

There are three components to the participation grade (read carefully, this is very confusing!):

Attendance

This class only meets once a week, so it is imperative that you attend every week.

1) If you miss one class (for any reason) the highest grade you can possibly receive is a 4.

2) If you miss two classes (for any reason) the highest grade you can possibly receive is a 2.

3) If you miss three classes (for any reason) you will receive a 0.

4) If you miss four or more classes (for any reason) you will receive a 0 and your final grade

otherwise will be lowered by one full grade (i.e., if you miss 4 classes and earn a B in the class overall with a 0 for participation, your final grade will be lowered to a C).

Speaking your mind

You have to actively participate in life. For 831 that means you need to speak-up in-class. So,

assuming you attend every class Ill categorize you as:

1) not providing any in-class comments or rarely providing constructive comments (e.g. a

couple times during the semester)

2) providing constructive comments at nearly every week, or

3) providing constructive comments on average more than once a week.

Your overall participation grade will then be adjusted accordingly, based on my assessment.

What is a constructive comment? Put simply, its a comment that adds value to the discussion. It

can be factual (e.g., stating a Standard), applied (e.g., something from your experience), or

insightful (e.g., a reasoned argument in favor of a new regulation). In the end, it is my call as to

whether you are providing constructive comments, or just comments.

831 Blog:

This is a new one for me. I hope it goes well. Im going to start an 831 blog and you all will be

required to post/comment. In teams of two, each of you will have an opportunity to act as Blog-

Master. A small part of your participation grade will be based on your blog interaction.

Overall

Other than the attendance floors, I do not (and, in fact, cannot) have an objective grading policy

for participation. In the end, you earn what I think you deserve. I will do my best to be fair in my

grading; it is up to you to make my decision an easy one!