ALPINE CUPCAKES, INC.
Risk Assessment, Cash and Accounts Receivable
Teaching Solutions and Implementation Guidelines
Overview
This casebook is a resource to use in the development of students’ comprehension of critical auditing
concepts, and can be used as a supplement to any introductory auditing textbook. In this portion of the
casebook (non-data analytics sections), students act as employees of Garcia and Foster CPA’s (the Firm)
and conduct an internal inspection of Alpine Cupcakes’ (the Client) 20X2 audit 1. The case assignments
allow students to review completed audit workpapers rather than create workpapers from scratch. In
the review, students identify errors in audit workpapers and client documentation. The casebook is
suitable for both graduate and undergraduate students.
Implementation Guidelines
This casebook is best implemented after students have been introduced to audit planning and risk
assessment procedures. The casebook can be use concurrently while students are learning tests of
internal controls and substantive auditing procedures. Students will then see these concepts in the
context of realistic audit workpapers.
The casebook is designed with flexibility in mind. There are three different non-data analytics modules
(risk assessment, cash and accounts receivable) that an instructor can use independently. Further, each
module comes with self-contained assignment questions, so instructors can select questions from a
single module or combine questions from different modules. Instructors can vary the assignment
questions by term. Appendix 1 provides an estimate of the completion time for student work on the
questions in each module.
Students can be overwhelmed by the number of documents in a typical workpaper file. Thus, when
assigning the case, we recommend the following:
• Explain the purpose of the assigned module (for example, discuss reasons why auditors perform
risk assessment procedures).
• Demonstrate to students the organization of the workpapers. Explain how the workpapers are
related to and referenced back to the audit program.
• Walk students through each page of the workpaper file for the module assigned, briefly
describing each document and its purpose. Most students are not familiar with audit
workpapers or client documents.
• While going through the documents with the students, provide explanations of auditing
techniques, including audit tickmark methodology and workpaper referencing between
documents.
• For each question assigned, show students which part of the audit program and the audit
workpapers relate to that question.
There are also some online videos that can be viewed by the instructors and/or students to understand
the organization of the casebook.
The instructor can assign questions as individual or team projects, depending on the level of the course
and class size. If the instructor chooses to make assignments on a team basis, we find it helpful to make
assignments due on a weekly basis rather than the entire project due at the end of the school term.
1
Both Garcia and Foster CPAs and Alpine Cupcakes, Inc. are fictitious companies. All audit workpapers and client
documentation are based on 2 and ¼ years of fictitious but realistic financial transactions.
© 2020
Guidelines—Alpine Cupcakes, Inc., 2e 1
, ALPINE CUPCAKES, INC.
Risk Assessment, Cash and Accounts Receivable
Teaching Solutions and Implementation Guidelines
Weekly assignments encourage team members to work together on solving each question rather than
splitting up the questions and only working on one piece of the project. The weekly due dates also give a
chance for students to get timely feedback on their progress.
The assignments do not provide students with a clearly defined endpoint; rather, the casebook
simulates a real audit where the students will need to determine for themselves when they have
collected enough information to fully answer the assigned questions. Often students want to know how
many standards they should reference or how many errors they should find. The casebook has
significant errors as well as many minor issues that students can identify. Students at different levels
can put in varying degrees of effort; high effort will yield a more comprehensive solution.
Grading Tips
Some recommendations for grading include (1) have students graded on an absolute scale (based on the
number of issues identified) or (2) grade students on a scale relative to the other students in the class
where the top ranking individual (team) receives full credit and the remaining teams receive credit in
relation to the top score. In our many implementations of this case, we have never had an instance of a
team finding every single issue. Undergraduate students usually find about 50% of the issues noted in
the solutions, whereas graduate students generally find more. Students may identify additional errors or
suggest other auditing procedures that are not identified in the solutions. These solutions were not
designed to be an exhaustive list but to highlight some of the main issues and concepts.
Solutions and grading checklists for each module are provided below. Each solution contains a detailed
explanation of the significant errors and minor issues seeded into the workpapers of the module.
Providing students with feedback in the form of the grading checklist allows students to see the amount
of errors they have found in relation to the total errors included in the module. When feedback is
provided on a weekly basis, students quickly learn the amount of detail and effort they should put into
the assignments. Reviewing the checklist in class and not allowing students to keep the checklist enables
the same assignments to be used in multiple terms.
© 2020
Guidelines—Alpine Cupcakes, Inc., 2e 2
, ALPINE CUPCAKES, INC.
Audit Case Study Teaching Solution
Risk Assessment Module
Learning Objectives:
The goal of this module is to enable students to understand the auditor’s audit planning and risk
assessment procedures. Specifically, students will
1. Assess the auditors’ documentation of their understanding of the client’s environment including
its internal controls.
2. Review and evaluate the auditors’ materiality threshold calculations.
3. Understand and apply the audit risk model.
4. Review and evaluate the auditors’ preliminary analytical procedures.
5. Evaluate the auditors’ documentation of their risk assessment procedures.
6. Conduct research on auditing standards.
7. Communicate findings clearly and concisely in a memo.
Teaching Notes and Suggested Solutions for Audit Planning and Risk Assessment Module:
The following provides a detailed description of the solutions to the risk assessment questions. Students
may find additional issues beyond those listed below that instructors may want to incorporate into their
grading assessments. In applicable areas of the solution, we separate the issues students in our classes
have identified into those found more frequently and those found less frequently. These will vary
depending on the areas instructors emphasize in their classes.
(LO 6)
Q1: Research, cite, and summarize the auditing standards as they relate to the auditor’s
responsibilities in following areas.
a. Obtaining and documenting an understanding of the client’s environment, including
internal controls.
b. Materiality assessment in planning and performing the audit.
c. The audit risk model
d. Preliminary analytical procedures.
Because Alpine Cupcakes is a public company, we recommend that instructors have students
follow PCAOB auditing standards, which can be found here:
http://pcaobus.org/Standards/Auditing/Pages/default.aspx.
© 2020
Solutions/Risk Assessment Module—Alpine Cupcakes, Inc. 3
, ALPINE CUPCAKES, INC.
Audit Case Study Teaching Solution
Risk Assessment Module
Q1. a. Risk Assessment (obtain an understanding) Suggested Solution
PCAOB Standards
1. PCAOB AS 2110: Identifying and Assessing Risks of Material Misstatement
Since Alpine Cupcakes is a public company, its auditors will follow the PCAOB
auditing standards. This standard covers the auditor’s responsibilities in identifying,
assessing and performing the risk assessment procedures. Paragraphs .04 through
.06 explain the auditor’s responsibility in performing risk assessment procedures to
identify and assess the risks of material misstatements. Paragraphs .07 and .08
discuss the auditor’s responsibilities in understanding the client and its
environment. Paragraph .12 in AS 2110 requires the auditor to obtain an
understanding of the following:
a. Relevant industry, regulatory, and other external factors;
b. The nature of the company;
c. The company's selection and application of accounting principles, including
related disclosures;
d. The company's objectives and strategies and those related business risks that
might reasonably be expected to result in risks of material misstatement; and
e. The company's measurement and analysis of its financial performance.
The following standards and paragraphs enhance the discussion about the auditor’s
responsibility in regards to understanding the client’s environment, including internal
controls.
2. PCAOB AS 2101: Audit Planning
Paragraph .07 discusses evaluating important matters when planning the audit
including auditor’s knowledge of the company, changes in company’s operations,
etc.
3. PCAOB AS 2110: Identifying and Assessing Risks of Material Misstatement
Paragraph .24 discusses the need to obtain an understanding of the control
environment.
© 2020
Solutions/Risk Assessment Module—Alpine Cupcakes, Inc. 4
Risk Assessment, Cash and Accounts Receivable
Teaching Solutions and Implementation Guidelines
Overview
This casebook is a resource to use in the development of students’ comprehension of critical auditing
concepts, and can be used as a supplement to any introductory auditing textbook. In this portion of the
casebook (non-data analytics sections), students act as employees of Garcia and Foster CPA’s (the Firm)
and conduct an internal inspection of Alpine Cupcakes’ (the Client) 20X2 audit 1. The case assignments
allow students to review completed audit workpapers rather than create workpapers from scratch. In
the review, students identify errors in audit workpapers and client documentation. The casebook is
suitable for both graduate and undergraduate students.
Implementation Guidelines
This casebook is best implemented after students have been introduced to audit planning and risk
assessment procedures. The casebook can be use concurrently while students are learning tests of
internal controls and substantive auditing procedures. Students will then see these concepts in the
context of realistic audit workpapers.
The casebook is designed with flexibility in mind. There are three different non-data analytics modules
(risk assessment, cash and accounts receivable) that an instructor can use independently. Further, each
module comes with self-contained assignment questions, so instructors can select questions from a
single module or combine questions from different modules. Instructors can vary the assignment
questions by term. Appendix 1 provides an estimate of the completion time for student work on the
questions in each module.
Students can be overwhelmed by the number of documents in a typical workpaper file. Thus, when
assigning the case, we recommend the following:
• Explain the purpose of the assigned module (for example, discuss reasons why auditors perform
risk assessment procedures).
• Demonstrate to students the organization of the workpapers. Explain how the workpapers are
related to and referenced back to the audit program.
• Walk students through each page of the workpaper file for the module assigned, briefly
describing each document and its purpose. Most students are not familiar with audit
workpapers or client documents.
• While going through the documents with the students, provide explanations of auditing
techniques, including audit tickmark methodology and workpaper referencing between
documents.
• For each question assigned, show students which part of the audit program and the audit
workpapers relate to that question.
There are also some online videos that can be viewed by the instructors and/or students to understand
the organization of the casebook.
The instructor can assign questions as individual or team projects, depending on the level of the course
and class size. If the instructor chooses to make assignments on a team basis, we find it helpful to make
assignments due on a weekly basis rather than the entire project due at the end of the school term.
1
Both Garcia and Foster CPAs and Alpine Cupcakes, Inc. are fictitious companies. All audit workpapers and client
documentation are based on 2 and ¼ years of fictitious but realistic financial transactions.
© 2020
Guidelines—Alpine Cupcakes, Inc., 2e 1
, ALPINE CUPCAKES, INC.
Risk Assessment, Cash and Accounts Receivable
Teaching Solutions and Implementation Guidelines
Weekly assignments encourage team members to work together on solving each question rather than
splitting up the questions and only working on one piece of the project. The weekly due dates also give a
chance for students to get timely feedback on their progress.
The assignments do not provide students with a clearly defined endpoint; rather, the casebook
simulates a real audit where the students will need to determine for themselves when they have
collected enough information to fully answer the assigned questions. Often students want to know how
many standards they should reference or how many errors they should find. The casebook has
significant errors as well as many minor issues that students can identify. Students at different levels
can put in varying degrees of effort; high effort will yield a more comprehensive solution.
Grading Tips
Some recommendations for grading include (1) have students graded on an absolute scale (based on the
number of issues identified) or (2) grade students on a scale relative to the other students in the class
where the top ranking individual (team) receives full credit and the remaining teams receive credit in
relation to the top score. In our many implementations of this case, we have never had an instance of a
team finding every single issue. Undergraduate students usually find about 50% of the issues noted in
the solutions, whereas graduate students generally find more. Students may identify additional errors or
suggest other auditing procedures that are not identified in the solutions. These solutions were not
designed to be an exhaustive list but to highlight some of the main issues and concepts.
Solutions and grading checklists for each module are provided below. Each solution contains a detailed
explanation of the significant errors and minor issues seeded into the workpapers of the module.
Providing students with feedback in the form of the grading checklist allows students to see the amount
of errors they have found in relation to the total errors included in the module. When feedback is
provided on a weekly basis, students quickly learn the amount of detail and effort they should put into
the assignments. Reviewing the checklist in class and not allowing students to keep the checklist enables
the same assignments to be used in multiple terms.
© 2020
Guidelines—Alpine Cupcakes, Inc., 2e 2
, ALPINE CUPCAKES, INC.
Audit Case Study Teaching Solution
Risk Assessment Module
Learning Objectives:
The goal of this module is to enable students to understand the auditor’s audit planning and risk
assessment procedures. Specifically, students will
1. Assess the auditors’ documentation of their understanding of the client’s environment including
its internal controls.
2. Review and evaluate the auditors’ materiality threshold calculations.
3. Understand and apply the audit risk model.
4. Review and evaluate the auditors’ preliminary analytical procedures.
5. Evaluate the auditors’ documentation of their risk assessment procedures.
6. Conduct research on auditing standards.
7. Communicate findings clearly and concisely in a memo.
Teaching Notes and Suggested Solutions for Audit Planning and Risk Assessment Module:
The following provides a detailed description of the solutions to the risk assessment questions. Students
may find additional issues beyond those listed below that instructors may want to incorporate into their
grading assessments. In applicable areas of the solution, we separate the issues students in our classes
have identified into those found more frequently and those found less frequently. These will vary
depending on the areas instructors emphasize in their classes.
(LO 6)
Q1: Research, cite, and summarize the auditing standards as they relate to the auditor’s
responsibilities in following areas.
a. Obtaining and documenting an understanding of the client’s environment, including
internal controls.
b. Materiality assessment in planning and performing the audit.
c. The audit risk model
d. Preliminary analytical procedures.
Because Alpine Cupcakes is a public company, we recommend that instructors have students
follow PCAOB auditing standards, which can be found here:
http://pcaobus.org/Standards/Auditing/Pages/default.aspx.
© 2020
Solutions/Risk Assessment Module—Alpine Cupcakes, Inc. 3
, ALPINE CUPCAKES, INC.
Audit Case Study Teaching Solution
Risk Assessment Module
Q1. a. Risk Assessment (obtain an understanding) Suggested Solution
PCAOB Standards
1. PCAOB AS 2110: Identifying and Assessing Risks of Material Misstatement
Since Alpine Cupcakes is a public company, its auditors will follow the PCAOB
auditing standards. This standard covers the auditor’s responsibilities in identifying,
assessing and performing the risk assessment procedures. Paragraphs .04 through
.06 explain the auditor’s responsibility in performing risk assessment procedures to
identify and assess the risks of material misstatements. Paragraphs .07 and .08
discuss the auditor’s responsibilities in understanding the client and its
environment. Paragraph .12 in AS 2110 requires the auditor to obtain an
understanding of the following:
a. Relevant industry, regulatory, and other external factors;
b. The nature of the company;
c. The company's selection and application of accounting principles, including
related disclosures;
d. The company's objectives and strategies and those related business risks that
might reasonably be expected to result in risks of material misstatement; and
e. The company's measurement and analysis of its financial performance.
The following standards and paragraphs enhance the discussion about the auditor’s
responsibility in regards to understanding the client’s environment, including internal
controls.
2. PCAOB AS 2101: Audit Planning
Paragraph .07 discusses evaluating important matters when planning the audit
including auditor’s knowledge of the company, changes in company’s operations,
etc.
3. PCAOB AS 2110: Identifying and Assessing Risks of Material Misstatement
Paragraph .24 discusses the need to obtain an understanding of the control
environment.
© 2020
Solutions/Risk Assessment Module—Alpine Cupcakes, Inc. 4
