CableCo Notes
Part III Questions:
      a. Steve set the planning materiality at 3% of net income.
      b. From the audience’s perspective, there was not much analysis on Steve’s part. It seemed as though it was an arbitrary figure that was established in order to leave room for a margin of error. However, it is more likely than not that Steve performed a thorough analysis before deciding on this figure.

  2. The auditors did not violate the AICPA’s Code of Professional Conduct in discussing the client-specific planning issues. This is a critical step in any audit engagement. The main issues were:
      * Realization of assets (in particular goodwill) – The auditors discussed that fact that cable is a natural monopoly and, due to oversaturation, the only way for CableCo to expand as intended is for it to acquire already established companies.
      * Poor segregation of duties – There is one person who is responsible for setting up customer accounts, billing the customers, and collecting the cash.
      * There is a lot of construction taking place and the costs need to be properly capitalized. The construction engineers are the ones keeping track of the costs and they may not be recording these costs in accordance with GAAP.

  3. Engagement Objectives:
      * Issue a report on the following: financial statements for the Form 10-K, financial statement schedules, and management letter to the audit committee.
      * Develop and train staff to assume additional responsibility while maintain staff continuity.
      * Establish, develop, and improve PR&S’s relationship with client management
      * Review the following income tax returns for CableCo:
        i. Federal return, Georgia return, Florida return, North Carolina return, and South Carolina return
      * Meet the rate and budget goals
Part IV Questions:
  1. Problem #1
  a. The payroll numbers for each year look the same, but they should be different due to the...