Old World Baked Goods: An Applied Exercise to Demonstrate the Audit Risk Model

• In Event: Teaching Cases and Pedagogy

Abstract

In this in-class competitive exercise, students apply their knowledge of the audit risk model to design and execute an audit plan to test a fictional company’s allowance for doubtful accounts. A unique feature of this exercise is that students are provided with outcome-feedback at its conclusion. That is, students learn whether their planned procedures were successful in detecting a material misstatement in the financial statements and what the subsequent implications are for their audit firm. The exercise provides students with applied exposure to concepts such as the assessment of audit risk, internal control testing via attribute sampling, and audit pricing/engagement profitability. A series of de-briefing questions is provided which allows for classroom discussion of the relevant issues examined in the case. The exercise can be completed within a single class period and students reported that it was effective in increasing both their knowledge of the audit risk model and their interest in auditing.

Author

• Stephen Perreault, Providence College