Module V: Accounts Receivable Aging Analysis.
Richard Derick has asked you to review the accounts receivable aging analysis and
the allowance for doubtful accounts and to recommend any audit adjustments or
reclassifications you consider necessary. Shelly Ross had prepared the aging analysis
and the allowance for doubtful accounts document before being temporarily transferred
to the Joplin Mills audit. She should be back early next week, but Derick
would like to “wrap up” accounts receivable this week.
Based on the aging analysis prepared by Ross, you have decided to confirm
all large accounts and a sampling of the smaller accounts, using positive
confirmations.
Requirements
1. Using the spreadsheet program and downloaded data, retrieve the file
labeled “AR.” Locate the following documentation in this file:
WP 3—Accounts and notes receivable—trade
WP 3.A—Accounts receivable aging analysis
WP 3.C—Allowance for uncollectible accounts
Scroll to WP 3.A, “Accounts Receivable Aging Analysis.”
a. What proportion of the total dollar amount of accounts receivable have
you included in your confirmation requests?
b. What procedures should you apply in the event of no reply to a request
for positive confirmation?
c. What is the purpose of analyzing subsequent collections?
2. Based on your analysis of subsequent collections and the results of the
confirmation process, are you satisfied that you have sufficient evidence to
evaluate the existence and valuation assertions?
3. Draft the suggested Reclassification Entry A.
4. Scroll to WP 3.C, “Allowance for Uncollectible Accounts.”
a. What type of correspondence would you examine to satisfy yourself as
to the accounts receivable write-offs?
b. Draft the suggested Audit Adjustment 2. Are you satisfied that the balance
in the allowance is adequate after your recommended adjustment?
c. Scroll to WP 3, “Accounts and Notes Receivable—Trade” (lead
schedule). Post Reclassification Entry A and Audit Adjustment 2 to the
appropriate locations in the lead schedule.
5. Print the documents 3, 3.A, and 3.C.
Module V: Accounts Receivable Aging Analysis 597
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BILTRITE PRACTICE CASE
Module VI: Sales and Purchases
Cutoff Tests
Along with Richard Derick and the rest of the audit team, you observed
Biltrite’s December 31, 2009, physical inventory. Derick is satisfied with the
inventory-taking procedures and has considerable confidence in the reliability
of the ending inventory quantities. He is concerned, however, with the methods
used to value the ending inventories (especially the disposition of unfavorable
budget variances) and with possible misstatements relating to sales and
purchases cutoff. With regard to cutoff, Derick is particularly interested in learning
why customers could not confirm details of sales transactions recorded by
Biltrite on December 31, 2009. In response to the confirmation and cutoff concerns,
he has asked you to examine the appropriate books of original entry and
underlying documentation for a few days before and after the balance sheet
date. Specifically, you are interested in the following:
1. Were purchases and sales recorded in the proper accounting period?
2. Were purchases recorded at year end included in the physical inventory?
3. Were all materials and purchased parts included in inventory recorded as
purchases?
4. Were the finished goods inventory accounts properly relieved for all
recorded sales?
You download Biltrite’s December voucher register and sales summary. These
are partially reproduced in Exhibits BR.7 and BR.8 referred to in Module II.
Using these as a focal point, you requested that the client provide you with the
documentation supporting certain of the recorded transactions. You now are
prepared to record any necessary audit adjustments and reclassifications.
Requirements
1. Using the spreadsheet program and downloaded data, retrieve the file
labeled “Cutoff.” Study WP 6.4, “Inventory Cutoff,” and compare it
with the voucher register and sales summary portions reproduced in
Exhibits BR.13 and BR.14 in Module II. Comment on any cutoff
misstatements that you detect and determine their effect on net income.
Do the misstatements appear to be intentional or unintentional? Explain.
2. Draft any audit adjustments suggested by the analysis performed in
requirement (1). (Remember that Biltrite maintains perpetual inventory
records and adjusts its perpetual inventory to the physical inventory through
the appropriate “Cost of Goods Sold” accounts.)
1. Print the completed document with the proposed cutoff audit
adjustments.
658
Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Module VII: Search for
Unrecorded Liabilities
An important part of every audit is examining vendors’ invoices processed after
year end. Related to cutoff, as discussed in Module VI, this set of procedures has
the purpose of determining that no significant invoices pertaining to the year
being audited have been omitted from recorded liabilities. Derick has asked
that you examine the document prepared by Cheryl Lucas and entitled “Search
for Unrecorded Liabilities,” and review it for necessary audit adjustments.
Requirements
1. Using the spreadsheet program and downloaded data, retrieve the file
labeled “Liab.” Comment on the adequacy of the procedures performed by
Lucas.
2. Assuming that you found the following additional unrecorded charges pertaining
to 2009, draft Audit Adjustment 6 at the bottom of WP 15.1:
a. Sales commissions $366,900
b. Employer’s payroll taxes: FICA $94,000, state unemployment $126,000
c. Printing and copying $27,800
d. Postage $22,300
e. Office supplies $18,6002
3. Print the document.
Module VI I : Search for Unrecorded Liabil ities 659
Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
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