Gaas

The nature and functions of auditing are that it determines and requires accountability. That accountability is in regards to the financial statements that are presented to the public, the creditors, the stockholders, the employees, and investors of a company. The need for auditing was described by U. S. Supreme Court Chief Justice Warren Burger in a 1984 Supreme Court decision. This statement is presented in the very beginning of our text and as such indicates the importance of auditing. “By certifying the public reports that collectively depict a corporation’s financial status, the independent auditor assumes a public responsibility transcending any employment relationship with the client. The independent public accountant performing this special function owes ultimate allegiance to the corporation’s creditors and stockholders, as well as to the investing public. This “public watchdog” function demands . . . complete fidelity to the public trust.” (pg 3) The audit function determines the accuracy of a company’s records. It is further used to “interpret FASB and other authoritative pronouncements to ensure that financial statements are fairly presented” and “make judgments about the fairness of very complex accounting processes such as inventory valuation or a pension liability estimate, and do all this in a totally objective, unbiased, and professionally skeptical manner. (pg 3)

At Pepperidge Farm all external auditors are hired by Campbell’s Soup Company primarily from Price Waterhouse Coopers. The independent auditors are sent out to each plant and are used to validate integrity. Pepperidge Farm is a Tier 1 company and must comply with Sarbanes-Oxley Act 404. Below is an excerpt from section 404:

(a) Rules Required. The Commission shall prescribe rules requiring each annual report required by section 13(a) or 15(d) of the Securities Exchange Act of 1934 to contain an internal control report, which shall--

(1) state the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and

(2) contain an assessment, as of the end of the most recent fiscal year of the issuer, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting.

(b) Internal Control Evaluation and Reporting. With respect to the internal control assessment required by subsection (a), each registered public accounting firm that prepares or issues the audit report for the issuer shall attest to, and report on, the assessment made by the management of the issuer. An attestation made under this subsection shall be made in accordance with standards for attestation engagements issued or adopted by the Board. Any such attestation shall not be the subject of a separate engagement. (www.sarbanescompliant.com)

When an audit is scheduled for Pepperidge Farm Inc. our Controller, Barry Bertani, receives and “engagement letter” that outlines the impending request. The letter is followed up by an email from the “lead auditor” requesting pre-site visit information, a contact phone number, and usually a list of requested documentation. I interviewed Mr. Bertani on 9/21/06 in regards to the GAAS and how the SOX Act influence any changes in the audit process.

In regards to the financial auditing there is a lot more emphasis put on management’s review of financial information. Both Barry and the Plant Manager, Rob Harrison, are required to review, approve, and sign off on all expenditures. Barry feels that this is to ensure that management is “process aware” and also to eliminate the ability for “reasonable denial.”

Having Campbell’s Soup Company as a parent company Pepperidge Farm has always dealt with operational auditing and compliance auditing. According to Mr. Bertani, “The SOX’s Act has taken those auditing functions (operational and compliance) to a more defined degree of accountability. The inventory and fixed assets are two areas that really come under scrutiny, although those audits