Chapter 15:
You will find this assignment located at the end of Chapter 15 (Professional Simulation)
You have just been assigned to the audit of a new manufacturing
client, Carroll Manufacturing Inc. (CMI) and the in-charge accountant on
the engagement. CMI manufactures automobile engines which are sold to
several automotive companies. CMI purchases raw steel and cast iron. CMI
does its own tool and die work, but it still purchases a number of
parts related to carburetion and ignition systems.
Please see attached file
Unit 5 Assignment Advanced Auditing
Chapter 15: You will find this assignment located at the end of Chapter 15 (Professional
Simulation)
Situation
Analytical
Procedures
Internal
Controls
Audit
Procedures
You have just been assigned to the audit of a new manufacturing client, Carroll Manufacturing
Inc. (CMI) and the in-charge accountant on the engagement. CMI manufactures automobile
engines which are sold to several automotive companies. CMI purchases raw steel and cast iron.
CMI does its own tool and die work, but it still purchases a number of parts related to
carburetion and ignition systems.
Analytical
Procedures
Situation
Internal
Controls
Audit
Procedures
Ratio
Unaudited Ratio
Auditor’s Expectation Range
Accounts Payable Turn Days
27 days
32 days-38 days
Inventory Turn Days
55 days
58 days-64 days
Gross Margin
48%
42%-46%
Sales and Accounts Payable
Sales Growth: 7%
Sales Growth:6%-9%
Growth Rates
Accounts Payable Growth: 4%
Accounts Payable Growth:6%-9%
The table above provide some preliminary information obtained during audit planning for CMI. Write
memo to the audit file explaining the planning implication associated with the audit finding above.
Identify assertions that are likely to be overstated or understated.
To: Audit file
Re: Analytical procedures
From: CPA Candidate
Situation
Internal
Controls
Analytical
Procedures
Audit
Procedures
Assertion
A.
B.
C.
D.
Existence and Occurrence
Completeness
Rights and Obligations
Valuation and Disclosure
Identify the appropriate assertion for each of the following internal controls. Check all of that
Internal Controls
1. The computer matches the costumer number on the
voucher with the costumer number om the costumer file.
2. Only the controller and the assistant controller have
the authority to add a new vendor to the vendor
master file.
3. The computer checks batch totals and run to run totals
to ensure that all transactions are proceed.
4. The manager of engine production reviews
all the purchases charged to his responsibility center
on a weekly basis, reviewing vendors, amounts,
and accounts charged.
5. The computer matches the date on the receiving
Report with the accounting period when the voucher
Is recorded.
6. The computer prints a report of all the purchase
orders that have not been receivings that have
not resulted in the recording of a voucher.
A
B
C
D
E
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
Situation
Audit
Procedures
Analytical
Procedures
Internal
Controls
Audit procedures
A. Vouch accounts payable credit to supporting vouchers, vendor invoices, receiving
reports, and purchase orders and other supporting information.
B. Obtain an understanding of the business and industry and determined the significance
of purchase and accounts payable to the entity.
C. Inquire of the management about existence of undisclosed commitments or
contingent liabilities.
D. Trace sample of cash receipts transactions from cash receipts journal to the general
ledger.
E. Vouch debit memos to underlying shipping repots vendor’s authorizations.
F. Obtain listing of accounts payable at balance sheet date determine that it accurately
represents the underlying accounting records by footing the listing and determining
agreement with (1) the total of the unpaid voucher file, subsidiary ledger, or account
t’s payable master file, and (2) the general ledger control account balance.
G. Observe the number of the last receiving report issued on the last business day of the
audit period and trace sample of lower and higher numbered receiving reports to
related purchase documents and determine that transactions were recorded in the
proper period.
H. Trace dates of ‘paid’ checks returned with a year-end cut-off bank statements to dates
recorded.
I. Determine that payables are properly identified and classified as to type and expected
period of payment.
J. Examine subsequent payments between balance sheet date and end of field work, and
when related documentation indicates payments was for obligation in existence at
balance sheet, trace to accounts payable listing.
Determine the audit procedure that best addresses the following risks
Risk
1. Recorder purchases may not represent
received during the year.
2. Cash disbursement may not be recorded
in the proper time period.
A B
C D E
F
G H I
J
O
O
O
O O O O O
O
O
O
O
O
O O O O O
O
O
3. All purchases (and payables) during the
period may not be recorded.
O O O O O O O O
4. Accounts payable might be understand
due to recording of invalid purchase
returns.
O O O O O O O O
5. The auditor may not have complete complete
Information about individual accounts
Payable that make up the general
Ledger balance.
O O O O O O O O
O O
O O
O O
Purchase answer to see full
attachment
