Wednesday, January 30, 2019
Audit program design part ii Essay
With the exception of cash bargains, every movement and amount is in the end included in i of two balance sheet accounts, accounts due or each(prenominal)owance for tough accounts. There atomic number 18 eight headache functions for the sales and assembly cycle. The first 4 processes ar for recording sales, patch every other class of minutes includes only one transmission line function. The four sales transaction functions be necessary for getting the goods into the pass of customers, correctly post-horseing them, and reflecting the in variantation in the accounting records. The remaining four functions involve the collection and recording of cash, sales returns and allowances, write-off of uncollectible accounts, and providing for gloomy debt spending.Classes of movementsBusiness Functions pull in revenueProcessing customer gildsGranting credit entryShipping goodsBilling customers and recording sales silver ReceiptsProcessing and recording cash receipts sale s returns and allowancesProcessing and recording sales returns and allowances set down of uncollectible accountsWriting off uncollectible accounts receivable Bad debt expenseProviding for dreadful debts(Arens, 2012, p.443)The anxiety of bear witnessing for sales is as follows Customer orders Shipping Documents Duplicate Sales placards Sales Journals and General Ledger. (Arens, 2012, p. 455)Tests of ControlsFor each control, there should be at least one test of control, but there can be more than one. We impart gather evidence for internal controls by Documentation honoring Inquiries of the client and Re- setance. The tests stimulate audit evidence that support the common assertions for the cable cycle population and Occurrence to ensure that sales be save for shipments to genuine customersCompleteness All existing sales transaction ar put downAccuracy to ensure that amounts of sales for quantities shipped is recorded and billed accurately, is summarized appropriately and is traceable to accounts receivables master tearPresentation and disclosure/ Classification Sales transaction are appropriately classified andCut-Off The sales are recorded in the accounting period in which these were incurred.We propose the followers tests of controls for Sales and Collections question of purchase orders from customers for evidence of customer approval Inspection of sales bankers bill for supporting documentation Tracing Sale invoice figures to bill of warhead and customer order Inspection of batch control burden for initials of info control clerk au thusticating sign offFollow up on the sequential pattern of Shipping documents Examination of file for batch totals and initials of info control clerk Inspect the internal verification documentation share and Re-perform reconciliation of customer debtors master file totals to general ledger balance. solid Tests of TransactionsFor each transaction, there should be at least one substantive test, but there ca n be more than one. We will gather evidence for internal controls by Documentation Inquiries of the client Re-performance and Recalculation. The tests create audit evidence that support the common assertions for the patronage cycle Existence and Occurrence, Completeness, Accuracy, Presentation and disclosure/ Classification, and Cutoff. We propose the following substantive tests of transactions for Sales and Collections Ensure that the sales invoices are serially numberedReview master file and sales journal for unusual transactions and abnormally high or low amountsTrace the s international angstromerele of selected sales journal entries to its supporting documents uniform , bill of lading and sales order inter alia , also embarrass duplicate sales invoice issued (if any)Trace information as per fare documents to the sales journal Trace sales journal ledger entries to sale invoices on sample basis Verify amounts on the sale invoice by re-computing price and extension on the sam eTrace amounts of sales from Sale invoices to customer orders, sale order and shipping documents like bill of lading etc. andTrace selected invoices from journal to the Trade debtors master file and test amount, date, and invoice number for valuation and cut off.Analytical ProceduresBecause analytic procedures are substantive tests, they reduce the extent to which the auditor needs to perform detailed tests of balances, if the analytical procedure results are favorable. Our audit team performs analytical procedures for the entire sales and collection cycle, not just accounts receivable. When we perform analytical procedures for sales, we obtain evidence about both sales and accounts receivable. We propose the following analytical procedures for Sales and CollectionsAnalytical Procedure Possible Mis line of reasoning study gross margin percentage with introductory enlargement or understatement of sales age (by product line). and accounts receivable. differentiate sales by month ( by product line) hyperbole or understatement of sales over m. and accounts receivable.Compare sales returns and allowances as a magnification or understatement of sales percentage of gross sales with former yrs returns and allowances and accounts (by product line). receivable.Compare individual customer balances over a Misstatements in accounts receivable and stated amount with previous years. related income statement accounts.Compare bad debt expense as a percentage of invalid accounts receivable that have gross sales with previous years. not been provided for.Compare number of days that accounts Overstatement or understatement of receivable are heavy(p) with previous years allowance for uncollectible accounts and and related turnover of accounts receivable. bad debt expense also may repoint fictitious accounts receivable.Compare develop categories as a percentage of Overstatement or understatement of accounts receivable with previous years. allowance for uncollectible acc ounts and bad debt expense.Compare allowance for uncollectible accounts Overstatement or understatement of as a percentage of accounts receivable with allowance for uncollectible accounts and previous years. bad debt expense.Compare write-off of uncollectible accounts as Overstatement or understatement of a percentage of total accounts receivable with allowance for uncollectible accounts and previous years. bad debt expense.(Arens, 2012, p. 524)Payroll and Personnel CycleThe force out and paysheet cycle of Apollo Shoes Inc. must be audited with the inclusion of tests of controls, substantive tests of transactions, and analytical procedures. Tests of account balance details are not carryd considering the balance sheet accounts regarding payroll are not of a material nature (Arens, Elder, & Beasley, 2012). Transactions within the payroll cycle have the electric potential for materiality and are therefore far more important when invention the audit program.Test of ControlsInte rnal control over the payroll and personnel cycle is significant to the accuracy of each payroll transaction. In order to properly test controls regarding each of the audit objectives listed above the design for test of controls includes several review and examination factors, as well as tidings with employees.Substantive Test of TransactionsTests of transactions may happen during the interrogation or internal control or may happen aft(prenominal) the internal control has been tested depending on the most efficient elan to conduct the audit program. Tests of transactions for the personnel and payroll cycle are of high importance because of the volume of transactions through and throughout the accounting period. Transaction testing allows for identification of irregularities and potential misstatements in payroll. Apollo Shoes Inc. uses an internal form known as a happen upon inhabitation sheet that indicate gross pay, each deduction, net pay, and year to date totals for each e mployee (Louwers & Reynolds, 2007). Examination and affinity of this form, the corresponding payroll register, and the corresponding canceled checks will oblige up a large portion of the tests of transactions.1.Compare canceled checks with payroll register2.Compare canceled checks with take home sheets3.Compare payroll change documents to payroll employee files 4.Recalculate register entries and take home sheets5.Recalculate hours worked from time records (Arens, et al., 2012) 6.Compare payroll register and take home sheets with vouchers paid 7.Examine employee records for all unclaimed checks8.Compare paid register and vouchers with master payroll file 9.Examine time cards and time clockAnalytical ProceduresAnalytical procedures as a part of the audit program allow for the relatively quick comparison of specific account details that may lead to identifying possible misstatements that require additional detailed testing (Arens, et al., 2012). Analytical procedures involve the u se of contemporary and historical information to make comparisons. If the comparison result differs from the expected so additional testing will be necessary.Compare salary expenses to those from utmost year in order to go under if the expected increase in salary expense is reasonable (Louwers & Reynolds, 2007).Compare total payroll expense to previous years accounting for pay and volume increases to pass water whether or not there are misstatements in payroll expenses (Arens, et al., 2012).Compare sales to last year and review these in order to follow if the changes in payroll and sales are relative from one year to the side by side(p). Increased sales with a decrease in payroll for example may indicate a misstatement.Compare payroll tax expense as a percentage of salaries and wages to previous years to determine potential misstatements in payroll tax expense (Arens, et al., 2012).Review executive director salaries and determine if they correspond to the salaries authori zed in the board minutes (Louwers & Reynolds, 2007).Acquisition and Payment CycleWith the acquisition and payment cycle, there are three main transactions in this cycle, which entail Attainment of merchandises and amenities, silver distribution, and purchase returns, andAllowances and buying reductions.The first perspicacity determination is to check for initiation by confirming that acquisition demand, purchase order, receiving report, payment transactions and merchandiser statements are attached to the coupon.It needs to be confirmed that the level of credit authorization is accurate, entrance of acquisitions are from approved merchandisers only, and that each transactions are appropriate. Then the, papers are studied for existence, merchants are certified, and payable records are reviewed for uncommon accounts. The fixed assets that are attained are observed too.The next audit goal is to check control for extensiveness by testing that the transactions are renumbered and i n sequence order. Transactions are outlined to coupons and journals. additionally is to assess controls for correctness by validating that the calculations are accurate and are associated to summary reports.The journals and reports are paralleled for correctness. The goal of the assessment is to check controls for arrangement by validating account grouping and inspecting the chart of accounts and processes by linking the grouping through the chart of accounts as they mention to the merchants statement.The audit goal is to assess the controls for timing by validating periods and observing and witnessing unrecorded merchant statements and transactions. These are confirmed on the inside. The dates of acquiring these reports and statement are then paralleled with dates of acquirement and payment transactions.The assessment platform is intended to let the business to comprehend how the auditors will be testing internal controls. This sequence of exams and organized processes are intend ed to demonstrate the worth and rationality of the sales and collection cycle, payroll and personnel cycle, and acquisition and payment cycle.The exams center on existence, wholeness, and correctness. in one case the exams are done, we will have a better indication on how to continue with the remainder of the assessment. It will help to regulate how long the assessment might be and what the price could be.ReferencesArens, A. A., Elder, R.J., & Beasley, M.S. (2012). Auditing and assurance services An incorporate approach (14th Ed.). raw(a) York, New York Pearson.Louwers, T. J., & Reynolds, J. K. (2007). Apollo Shoes Casebook. New York, New York McGraw-Hill.