| Course | ACC 491 Contemporary Auditing I (ACC/491) |
|---|---|
| Week | 1 |
| Paper type | Auditing standards and role paper |
| Length | about 1,083 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | BS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 491 Week 1
A First Audit Because the Bank Asked: Who Sets the Standards, What an Auditor Promises and Where Independence Draws the Line for a Composite Plumbing Supply Distributor
[Student Name]
University of Phoenix
ACC/491: Contemporary Auditing I
Week 1 Assignment
[Instructor Name]
[Date]
The distributor, its bank and its auditors are composites written for a model paper; standards and research findings come from the sources listed.
A composite plumbing supply distributor, owned by two siblings, supplies contractors with pipe, valves, faucets, tankless heaters and tools through four branches. Its bank has approved an increase in its revolving credit line from $4 million to $8 million, on one condition: beginning this year, the company must provide audited financial statements. Until now it has provided statements reviewed by its outside accountant. The siblings have questions about what they are buying. An audit is not a certificate that the numbers are right; it is an independent professional's opinion, backed by evidence, that the numbers can be relied on. This paper answers their questions.
Why the Bank Wants an Audit
Lenders rely on financial statements to judge whether a borrower can repay, but the statements are prepared by the borrower, who has an interest in looking strong. An independent audit reduces that information risk. Minnis (2011) found that private firms with audited statements obtained lower interest rates than otherwise similar firms, evidence that lenders value verification. At an $8 million line, the bank wants more than the limited assurance a review provides.
Audits, Reviews and Compilations
The three services differ in assurance. A compilation presents management's information in financial statement form with no assurance. A review provides limited assurance, based mainly on inquiry and analytical procedures, that no material modifications are needed. An audit provides reasonable assurance, based on evidence gathered through testing, that the statements are free of material misstatement. The distributor's current accountant has been performing reviews; the audit will require observing inventory counts, confirming receivables and testing controls and transactions.
Who Sets the Standards
For a private company, auditors follow generally accepted auditing standards issued by the Auditing Standards Board of the American Institute of Certified Public Accountants. For public companies, the Sarbanes-Oxley Act of 2002 gave that authority to the Public Company Accounting Oversight Board, which also inspects audit firms. The distributor is private, so its audit will follow the AICPA's standards. The financial statements themselves will follow generally accepted accounting principles set by the Financial Accounting Standards Board, which are separate from the standards that govern how the auditor works.
Reasonable Assurance and Materiality
The auditor's objective is to obtain reasonable assurance that the statements taken as a whole contain no material misstatement, from honest error or from fraud, and then to express an opinion. Reasonable assurance is high but not absolute, because auditors test samples rather than every transaction, rely on judgment and cannot always detect fraud concealed by collusion or forgery. An error or omission counts as material when it is large enough to change what a user such as the bank would decide. The auditor will set a materiality level based on a benchmark such as pretax income or revenue.
Management's Responsibilities and the Auditor's
The engagement letter will state that management is responsible for preparing the statements, for designing and maintaining internal control and for giving the auditor access to records and people. The auditor is responsible for planning and performing the audit to obtain reasonable assurance and for communicating significant findings. The siblings cannot hand the auditor their unreconciled books and expect statements back; the audit examines statements management has prepared.
Independence
Independence, in fact and in appearance, is the foundation of an audit's value. The AICPA Code of Professional Conduct requires members performing attest engagements to be independent and describes threats, such as self-review and familiarity, and safeguards (American Institute of Certified Public Accountants, 2014). The distributor's longtime accountant has prepared its tax returns and helped close its books each year. The siblings asked whether that firm could perform the audit.
The firm could continue preparing tax returns, a nonattest service that generally does not impair independence if management takes responsibility for the returns. But the firm has also been recording adjusting entries and preparing the financial statements, which would create a self-review threat: the firm would be auditing its own work. The firm offered two options. First, it would audit the statements while continuing to prepare the tax returns and have management, with a newly hired controller, prepare the statements and record entries. Second, it would continue keeping the books and have a different partner lead the audit. The first option, with the safeguards described, can preserve independence. The second cannot, because a different partner does not remove the fact that the firm would audit records it maintained.
Audit Quality
DeAngelo (1981) argued that audit quality depends on the probability that an auditor both discovers and reports a breach, and that larger firms have more to lose from reporting failures. Francis (2004) reviewed evidence that audit failures are rare but costly and that quality varies across firms and offices. For the siblings, these ideas suggest choosing a firm with experience in distribution companies and confirming it has passed its most recent peer review.
What the First Year Involves
A first-year audit costs more than later ones because the auditor must establish opening balances. Since no one audited last year's statements, the auditor will review the prior accountant's work where available and perform extra procedures on beginning inventory and receivables, because errors in opening balances flow into this year's income. The auditor will also document the company's systems for the first time. The siblings should expect the new controller to spend much of the first quarter answering requests and should budget for fees roughly a third higher than in future years.
Possible Opinions
If the statements are fairly presented in all material respects, the auditor will issue an unmodified opinion. If there is a material misstatement that is not pervasive, or the auditor cannot obtain enough evidence on one area, such as an inventory count it could not observe, the opinion will be qualified. A pervasive misstatement leads to an adverse opinion, and a pervasive inability to obtain evidence leads to a disclaimer. The bank's loan agreement requires an unmodified opinion, which makes the first-year inventory observation especially important.
Conclusion
The distributor needs an audit because its bank must rely on its statements for a larger loan. The audit will follow the AICPA's standards, provide reasonable but not absolute assurance and leave responsibility for the statements with management. Its longtime accountant can perform the audit only if the company takes over bookkeeping and statement preparation, and the result the bank needs is an unmodified opinion.
References
American Institute of Certified Public Accountants. (2014). Code of professional conduct.
DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3(3), 183-199. https://doi.org/10.1016/0165-4101(81)90002-1
Francis, J. R. (2004). What do we know about audit quality? The British Accounting Review, 36(4), 345-368. https://doi.org/10.1016/j.bar.2004.09.003
Minnis, M. (2011). The value of financial statement verification in debt financing: Evidence from private U.S. firms. Journal of Accounting Research, 49(2), 457-506. https://doi.org/10.1111/j.1475-679X.2011.00411.x
What the ACC 491 Week 1 instructions ask
In ACC 491 Week 1, students generally set out the purpose of auditing, the bodies that write auditing standards and what the auditor is responsible for. Typical prompts cover the demand for audits, the difference between audits and other attest or assurance services, generally accepted auditing standards and the PCAOB's standards for public companies, the concept of reasonable assurance, the responsibilities of management and auditors for the financial statements and for detecting fraud and the requirement of independence under professional codes. Some versions include the types of audit opinions or the audit report's structure. The paper should apply these ideas to a situation and cite standards and research in APA style.
How this ACC 491 Week 1 example is built
A private distributor facing its first audit gives the paper a setting in which every basic question arises naturally. The owners want to know why the bank will not accept their accountant's review, who writes the rules the auditor follows, how much the audit will guarantee and whether their longtime tax preparer can do the audit. The paper answers each in turn, citing the relevant standard. Independence is tested against two specific offers from the audit firm, one acceptable and one not. The closing section describes the possible opinions and what each would mean for the bank relationship, which ties the standards back to the reason the audit was needed.
ACC 491 Week 1 grading rubric: where the points go
Instructors tend to grade this paper on an accurate explanation of why audits exist, who sets auditing standards for private and public companies, what reasonable assurance means and how responsibilities are divided. Independence must be explained with correct application of professional rules, not general statements about objectivity. Distinguishing audits from reviews and compilations shows understanding of the assurance spectrum. Accurate description of the types of opinion adds credit. Examples tied to a company, even a described one, earn more than definitions. The remaining marks go to a logical structure, a professional voice and APA references to the standards, the code of conduct and research.
ACC 491 Week 1 help: mistakes to avoid
ACC 491 Week 1 papers often say that an audit guarantees the financial statements are correct. It does not; it provides reasonable, not absolute, assurance that they are free of material misstatement. Say so plainly. Another error is saying the PCAOB sets standards for all audits; its standards apply to public companies and certain broker-dealers, while private company audits follow the AICPA's standards. Students also forget that management, not the auditor, is responsible for the financial statements and internal control. When discussing independence, apply the specific rule to the facts. Define materiality in a sentence. Finally, connect the audit to the users who rely on it, such as a lender, and to the decisions those users make.
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ACC 491 Week 1 questions, answered
What does ACC/491 Week 1 usually cover?
It usually covers the purpose of auditing, auditing standards for private and public companies, reasonable assurance, the responsibilities of management and the auditor and auditor independence.
Where can I find a free ACC 491 Week 1 sample paper?
This page shows a first-audit example for a plumbing supply distributor, covering standards, assurance and independence, with margin notes and no charge to read. Send us your prompt and the first custom draft is free.
What is reasonable assurance in an audit?
A high but not absolute level of assurance that the financial statements are free of material misstatement, limited by sampling, judgment and the possibility of concealed fraud.
Who sets auditing standards in the United States?
The AICPA's Auditing Standards Board sets generally accepted auditing standards for private company audits, and the Public Company Accounting Oversight Board sets standards for audits of public companies.
What is the difference between an audit and a review?
An audit provides reasonable assurance through testing and evidence; a review provides limited assurance based mainly on inquiry and analytical procedures.
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