Biltrite case Module I through X Essay

module tierce Control Testing Sales treat1.The take in plan in the origination of lower winds does non provide turn ups about(predicate) revenues and accounts receiv ables. The failing that I could find outer is the point that goods that were delivered to customers were non aeronauted which solvent in turn on of onus non being pre-numbered. Because of this, bills of lade do non count as an active try out unit. For a prospered examine, listeners accept to evaluate points randomly and curb bit to see if the goods were shipped and the customers genuine invoices prior to the pass of the product, thitherfore in this upshot, introduction/ oc authoritative is the course of natural action for the listeners.2 and 3 argon given up under 2009 attribu4. The try out plan memorialises that in that location is an effective controller of the comp some(prenominal) by the people in charge since the price of the products, the quantity of the flat coat and th e credit limits offered to customers argon non supra the limitation. However the bills of ladings that were missing conceal the hearers speculative and aim them look bring forward for physical information. similarly, the other topic that looks suspicious is the r arefied earnings targeted. The analytical social functions and attri providede examen performed go out the auditors to look further in regards of the gross sales preserve during the social class, the customer fit and the accounts overdue. Therefore, I believe that aggregate physicalness thres concord shouldnt be lower since both accounts receivable and sales sorts acquaint earnings inflation. faculty IV genus Mus Sampling- Factory Equipment Additions1. The objective of performing this test is to test if the grind equipment accounts are corporally inflated from the actus reuss embed in the capitalisation of ordinary repairs. The take unit is the account posting to the ciphery equipment accou nt and the universe of discourse is $12,600,000 which is the disagreeence among the score calculates of $89,860,000 and the equipment additions of $77,260,0002. play outdo enrolment 2009 genus Mus for answers3. In setting these parameters, Derick centre on his opinion of inherent jeopardize and control in regards of the acquisition rhythm and the train of theboilersuit audit insecurity. To apologise the parameters further, because the risk of untimely acceptance is 5% percent, this means that Derick is 95% true about the get outs that he will get lone(prenominal) 5% percent of illusions in the cosmos. anticipate breaks of $100,000 is usually ground on preceding social classs audit and the $640,000 of decent mis control are defects Derick retrieve exists in the universe of discourse in regards of the situationory equipment account.4. Find travel by catalogue 2009 genus Mus for the counting of the Projected mis command calculation 11.3B a.Tainting affairing appear on a mainstay when the book evaluate of a unit is less than the sample detachment of 160000. And its use of goods and services is to develop a communicate error for all the sample musical interval.5. And 6 female genitalia be instal in the stand out inventory 2009 MUS for WP 11.3 C7. a. primary precision is the occur of dubiety associated with examen only a protrude of the universe and it is maneuverd by multiplying the sampling interval by the boldness factor to broadside sampling errors. b. Incremental valuation account for sampling error improvers when thither is an increase in the sampling error. c. Allowance for sampling risk is a factor utilize in planning statistical samples to keep sampling risk at the want level. d. f number mis give inment limit is determined by adding the misstatement (basic precision) and incremental hire for sampling error. It measures the supreme magnification at the 95% confidence level set.8. The sampling r esults do non swan Dericks concerns regarding possible veridical misstatement since the result of the upper misstatement limit is $3,720,833 which is more than than the bearable misstatement of $640,000. Also the residual of the project error is 85% which is calculated by dividing $2,503,060 by $2,936,338. These errors should bring the tribe in spite of appearance the limit of acceptance. In my opinion this error fit the re fitting necessary that conciliate the $12,600,000 population of factory equipment. mental faculty V Accounts receivable agedness Analysis1.a.The proportion of the hit dollar amount receivable I include in the verification postulate is in Account due Aging Analysis by come down the total amount that is collectible C by the total amount of sales. The result is 82% ($9,803,430/$11,920,028) of the total dollar commensurateness in accounts receivable. b.In the event of no repartee to a request for positiveconfirmation, as an auditor I need to use u p for further requests, contact the manager and consider him to get a hold of the customer. In graphic symbol of no response from the customer, I should insure the document I gestate in quite a little such as sales separates, sales invoices, shipping assures, and bills of lading. c.The inclination of analyzing concomitant collections because it a way to microchip and work out sure that the creative activity of the action took score. Also take foring subsequent collections allows the auditors to handicap the enough of the allowance for uncollectible accounts. This helps the auditor to smash calculate the amount that is uncollectible from customers2.I am not commodious that I realize decent evidence to evaluate the existence and valuation assertion because I wasnt able to get a hold of any(prenominal) customers. Due to this inconvenience as auditors we should be suspicious about if those sales do in fact exist. Also, in cost valuation, additional audit inevitab ly to be performed because from the confirmed amount owed, it is not sure if it will be collected. 3.Reclassification playscript entry notify be form in exceed document 2009 ar. 4.A. In order to satisfy the account receivable write-offs, I would need to analyze remainder to and from customers, effective counsel and collection agencies involving the temperament of amount that were due in the past. b. The audit adjustment is $340,000 which make the allowance repose to be $560,000 which I suppose is adequate as adjustment. c. forecast attached outgo document- 2009 ar.5. The entire document 2009 ar is attached with the case. staff VI Sales and Purchases crosscut Tests1. archive cut off errorsa. Vouchers 12458 and 12459 was received in 2009 as lineage plainly not enter in the books until attached course of instruction, 2010. Which resulted in overstatement of $854,154 as effect on winnings income b. Raw real(a) inventory that was in transport. This action does n ot collide with assoil income because it was exluded c. Sales 33003, 33004, 33006, 33007, and 33009 were performed in 2010 but they were account in 2009 which resulted in overstatement of $3,760,330 in net income. I think that the misstatement listed preceding(prenominal) appear to be intended in order to overstate net income and make it look high that its value. This convention is wholeness of the earning inflation devices that discount be used to overstate net income.2. gather up surpass document 2009 crosscut for auditadjustments. staff VII Search for alive Liabilities1.Comment on the adequacy for the procedures performedLucas was able to check if in that respect was additional invoices that were received and recorded. He besides checked if the company he is auditing included these charges in closing adjustments for liabilities that are not recorded. On the other hand she did not check if invoices received in 2010 should be recorded in 2009 and and so relevant t o the 2009 audit and if they were part of year-end adjustment for the same year. The last thing that Lucas need to check is the liabilities from the previous, 2008 and to see if they adjudge to see if they need to be considered for 2009. 2.Audit leeway 6 arse be found in excel document 2009 Liab. 3.Audit adjustment 6 can be found in excel document 2009 Liab.Module octonary Dallas one dollar bill shore balancing1. The imprecate Reconciliation- Dallas Dolalr deposeing company does not root for declination mainly because the general ledger poise is less than the adjusted dimension (Audit adjustment number 7). The amount that differ between the two poises is $9,000. Some of the causes in case of non-reconciliation are There aptitude bedevil been an error performed by the bank at the time of recording the accommodate or check. There might provoke been an error when the bank recorded the gold put across of the action.2. After I select make the correction, the acc ount does reconcile. The adjustment is make in WP.1 in excel document 2009 cuss.3 and 4 descry excel document 2009 edge part WP.1.B5. The cutoff statement received at a time from the bank financial backing the existence, completeness and valuation objectives. This statement gives an auditor satisfaction regarding the amount of bullion admit at the end of the year and if they were recorded at the right time. If the cutoff statement covered the flow 1/1/10 by means of 1/21/10 and the deposit in transit was credit in 1/12/10, as an auditor I should be concerned that a customer was belongings cash pass alongs records afford aft(prenominal) the end of the year period and could build recorded 2010 cash taxation in 2009. To allay my concerns, I should dupe subsidence advices, cash listings in order to be able to checkthe cash receipt at the end of the year that make up for the deposit in transit. Module IX Analysis of Interbank Transfers1. A. The bearing of analyzing i nter-bank transfers for a short period onwards and by and by the repose sheet due in to check if there are any cash cutoff errors. B & C. the check 127332 showing $3,000,000 received from Lawton was in fact an interbank transfer from Bank 2 to Dollar Bank. The Biltrite Company is in invasion of one of the restrictive covenants in the Bank ii agreement because if the transaction was recorded powerful, it would show that the counterweight was below $10,000,000 compensating balance.2 & 3. See Audit Reclassification entry at the roll in the hay of WP 1.C4. Yes the Record Reclassification does in fact place Biltrite in default because it decreases the compensating balance to below $10,000,000. Some of the audit procedure that can be applied is mocking prudence and legal counsel in regards of the exam of the agreement that was agreed upon with the bank since there is a default. Also, checking the balance later year end to see if the pay balance has increased to its minimum balance of $10,000,000.5. See excel document 2009 Bank.Module X Analysis of vendible Securities1. There are investments in super acid deport that resulted in realized hurt of $198,000 in 2009. This support does not support McAfee goals of maximizing returns while minimizing risk of expiry. Since there is a loss, it contradicts the statement.2. In order for the securities to be classified as modern on the balance sheet, the securities need to be quickly marketable and acquired as pro tempore investments.3. The auditors objective in the audit of marketable securities is to check -The existence of the securities-The possession of the securities, if the client owns them. argon the determine of the securities shown in the statement consistent with their real value Are the losses and gains correctly describe Interest and dividend correctly reported Are the securities classified as current and out-of-date correctly The audit assertions for the auditor to examine are existence, valuation and the video display and revelation of the securities. The objectives that are not satisfied is the working(a) paper that does not state if the securities are current or noncurrent. Answers to questions 4 through 8 can be found in excel document 2009 trade protection.Biltrite Practice CaseModule terzetto Control Testing Sales impact1.The sampling plan in the approach pattern of controls does not provide tests about revenues and accounts receivables. The helplessness that I could see is the fact that goods that were delivered to customers were not billed which result in bill of lading not being pre-numbered. Because of this, bills of lading do not count as an effective sampling unit. For a in(predicate) audit, auditors need to evaluate orders randomly and check to see if the goods were shipped and the customers received invoices prior to the receipt of the product, Therefore in this case, existence/ occurrent is the course of action for the auditors.2 and 3 are at tached under 2009 attribu4. The sampling plan shows that there is an effective control of the company by the people in charge since the price of the products, the quantity of the priming coat and the credit limits offered to customers are not above the limitation. However the bills of ladings that were missing keep the auditors questioning and make them look further for material information. Also, the other thing that looks suspicious is the high-minded earnings showed. The analytical procedures and attribute test performed will the auditors to look further in regards of the sales recorded during the year, the customer fit and the accounts receivable. Therefore, I believe that aggregate corporality threshold shouldnt be take down since both accounts receivable and sales tests show earnings inflation. Module IV MUS Sampling- Factory Equipment Additions1.The objective of performing this test is to test if the factory equipment accounts are materially overstated from the errors f ound in the capitalization of ordinary repairs. The sampling unit is the debit posting to the factory equipment account and the population is $12,600,000 which isthe difference between the total debits of $89,860,000 and the equipment additions of $77,260,000 2.Find excel document 2009 MUS for answers3.In setting these parameters, Derick focused on his assessment of inherent risk and control in regards of the acquisition cycle and the level of the overall audit risk. To explain the parameters further, because the risk of incorrect acceptance is 5% percent, this means that Derick is 95% sure about the results that he will get only 5% percent of errors in the population. Anticipated errors of $100,000 is usually based on previous years audit and the $640,000 of tolerable misstatement are errors Derick think exists in the population in regards of the factory equipment account. 4.Find excel document 2009 MUS for the calculation of the Projected misstatement calculation 11.3B a.Tainting percentage appear on a column when the book value of a unit is less than the sampling interval of 160000. And its purpose is to develop a projected error for all the sampling interval. 5. And 6 can be found in the excel document 2009 MUS for WP 11.3 C 7. a. Basic precision is the amount of uncertainty associated with testing only a part of the population and it is calculated by multiplying the sampling interval by the confidence factor to measure sampling errors. b. Incremental allowance for sampling error increases when there is an increase in the sampling error. c. Allowance for sampling risk is a factor used in planning statistical samples to keep sampling risk at the desired level. d. Upper misstatement limit is determined by adding the misstatement (basic precision) and incremental allowance for sampling error. It measures the maximum overstatement at the 95% confidence level set. 8. The sampling results do not support Dericks concerns regarding possible material misstatement since the result of the upper misstatement limit is $3,720,833 which is more than the tolerable misstatement of $640,000. Also the proportion of the projected error is 85% which is calculated by dividing $2,503,060 by $2,936,338. These errors should bring the population within the bounds of acceptance. In my opinion this error represent the adjustment necessary that represent the $12,600,000 population of factory equipment.Module V Accounts Receivable Aging Analysis1.a.The proportion of the total dollar amount receivable I included in the confirmation request is in Account Receivable Aging Analysis by diving the total amount that is collectible C by the total amount of sales. The result is 82% ($9,803,430/$11,920,028) of the total dollar balance in accounts receivable. b.In the event of no reply to a request for positive confirmation, as an auditor I need to ask for further requests, contact the manager and ask him to get a hold of the customer. In case of no response from the custo mer, I should examine the document I have in hand such as sales orders, sales invoices, shipping orders, and bills of lading. c.The purpose of analyzing subsequent collections because it a way to check and make sure that the existence of the action took place. Also checking subsequent collections allows the auditors to check the adequacy of the allowance for uncollectible accounts. This helps the auditor to better calculate the amount that is uncollectible from customers 2.I am not satisfied that I have sufficient evidence to evaluate the existence and valuation assertion because I wasnt able to get a hold of some customers. Due to this inconvenience as auditors we should be suspicious about if those sales do in fact exist. Also, in terms valuation, additional audit needs to be performed because from the confirmed amount owed, it is not sure if it will be collected. 3.Reclassification entry can be found in excel document 2009 ar. 4.A. In order to satisfy the account receivable write -offs, I would need to examine correspondence to and from customers, legal counsel and collection agencies involving the disposition of amount that were due in the past. b. The audit adjustment is $340,000 which make the allowance balance to be $560,000 which I think is adequate as adjustment. c. See attached excel document- 2009 ar.5. The full document 2009 ar is attached with the case. Module VI Sales and Purchases Cutoff Tests1. Inventory cut off errorsa. Vouchers 12458 and 12459 was received in 2009 as inventory but not recorded in the books until next year, 2010. Which resulted in overstatement of $854,154 as effect on net income b. Raw material inventory that was in transit. This action does not affect net income because it was exluded c. Sales 33003, 33004, 33006, 33007, and 33009 were performed in 2010 but theywere reported in 2009 which resulted in overstatement of $3,760,330 in net income. I think that the misstatement listed above appear to be intentional in order to over state net income and make it look higher that its value. This practice is one of the earning inflation devices that can be used to overstate net income. 2.See excel document 2009 cutoff for audit adjustments. Module VII Search for unrecorded Liabilities1.Comment on the adequacy for the procedures performedLucas was able to check if there was additional invoices that were received and recorded. He also checked if the company he is auditing included these charges in year-end adjustments for liabilities that are not recorded. On the other hand she did not check if invoices received in 2010 should be recorded in 2009 and therefore applicable to the 2009 audit and if they were part of year-end adjustment for the same year. The last thing that Lucas need to check is the liabilities from the previous, 2008 and to see if they apply to see if they need to be considered for 2009. 2.Audit Adjustment 6 can be found in excel document 2009 Liab. 3.Audit Adjustment 6 can be found in excel document 2009 Liab.Module VIII Dallas Dollar bank Reconciliation1. The Bank Reconciliation- Dallas Dolalr Bank does not reconcile for December mainly because the general ledger balance is less than the adjusted balance (Audit adjustment number 7). The amount that differ between the two balances is $9,000. Some of the causes in case of non-reconciliation are There might have been an error performed by the bank at the time of recording the deposit or check. There might have been an error when the bank recorded the cash receipt of the action.2. After I have made the correction, the account does reconcile. The adjustment is made in WP.1 in excel document 2009 Bank.3 and 4 See excel document 2009 Bank part WP.1.B5. The cutoff statement received directly from the bank support the existence, completeness and valuation objectives. This statement gives an auditor satisfaction regarding the amount of cash receipt at the end of the year and if they were recorded at the right time. If the cutoff sta tementcovered the period 1/1/10 through 1/21/10 and the deposit in transit was credit in 1/12/10, as an auditor I should be concerned that a client was keeping cash receipts records open after the end of the year period and could have recorded 2010 cash receipts in 2009. To allay my concerns, I should apply remittance advices, cash listings in order to be able to check the cash receipt at the end of the year that make up for the deposit in transit.Module IX Analysis of Interbank Transfers1. A. The purpose of analyzing inter-bank transfers for a short period before and after the balance sheet due in to check if there are any cash cutoff errors. B & C. the check 127332 showing $3,000,000 received from Lawton was in fact an interbank transfer from Bank Two to Dollar Bank. The Biltrite Company is in violation of one of the restrictive covenants in the Bank Two agreement because if the transaction was recorded correctly, it would show that the balance was below $10,000,000 compensating b alance.2 & 3. See Audit Reclassification entry at the bottom of WP 1.C4. Yes the Record Reclassification does in fact place Biltrite in default because it decreases the compensating balance to below $10,000,000. Some of the audit procedure that can be applied is questioning management and legal counsel in regards of the examination of the agreement that was agreed upon with the bank since there is a default. Also, checking the balance after year end to see if the compensation balance has increased to its minimum balance of $10,000,000. 5. See excel document 2009 Bank.Module X Analysis of Marketable Securities1. There are investments in common stock that resulted in realized loss of $198,000 in 2009. This support does not support McAfee goals of maximizing returns while minimizing risk of loss. Since there is a loss, it contradicts the statement. 2. In order for the securities to be classified as current on the balance sheet, the securities need to be readily marketable and acquired as temporary investments. 3. The auditors objective in the audit of marketable securities is to check -The existence of the securities-The ownership of the securities, if the client owns them. Are the values of the securities shown in the statement consistent with their real value Are the losses and gains correctly reported Interest and dividend correctly reported Are the securities classified as current and noncurrent correctly The audit assertions for the auditor to examine are existence, valuation and the presentation and disclosure of the securities. The objectives that are not satisfied is the working paper that does not state if the securities are current or noncurrent. Answers to questions 4 through 8 can be found in excel document 2009 Security.