Biltrite case Module I through X Essay

faculty III Control Testing Sales Processing1.The consume innovation in the determination of reign overs does non provide retards well-nigh revenues and accounts dues. The weakness that I could propose is the fact that goods that were delivered to customers were not billed which result in bill of lading not beingness pre- numbered. Because of this, bills of lading do not count as an hard-hitting sample unit. For a successful take stock, audited accountors need to adjudicate hallows randomly and check to trip up if the goods were shipped and the customers trustworthy invoices prior to the receipt of the product, Therefore in this case, existence/occurrence is the course of action for the auditors.2 and 3 argon attached under 2009 attribu4. The sampling plan manifests that on that point is an effective control of the company by the community in charge since the price of the products, the quantity of the footing and the credit specifys offered to customers be not to a higher place the boundsation. However the bills of ladings that were missing keep the auditors skeptical and make them matter further for material information. Also, the other thing that looks shadowed is the inflated earnings showed. The analytical procedures and depute testing performed will the auditors to look further in regards of the gross revenue recorded during the year, the customer reposed and the accounts receiv qualified. Therefore, I believe that aggregate materiality thres ingest shouldnt be lowered since both accounts receivable and gross revenue tests show earnings inflation. mental faculty IV genus 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 assemble in the capitalization of ordinary repairs. The sampling unit is the debit posting to the factory equipment account and the race is $12,600,000 which is the difference between the a gree debits of $89,860,000 and the equipment additions of $77,260,0002. Find pass instrument 2009 MUS for answers3. In setting these parameters, Derick focused on his assessment of inherent venture and control in regards of the acquisition cycle and the level of theoverall audit risk. To explain the parameters further, because the risk of incorrect acceptance is 5% percent, this means that Derick is 95% authentic about the results that he will get only 5% percent of errors in the population. anticipate errors of $100,000 is usually based on previous years audit and the $640,000 of tolerable misstatement are errors Derick speak up exists in the population in regards of the factory equipment account.4. Find go by chronicle 2009 MUS for the calculation of the Projected misstatement calculation 11.3B a.Tainting plowshare appear on a column when the book value of a unit is less(prenominal) than the sampling interval of 160000. And its direct is to develop a communicate error f or all the sampling interval.5. And 6 commode be found in the jump document 2009 MUS for WP 11.3 C7. a. Basic precision is the criterion 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 mea received sampling errors. b. Incremental payment for sampling error increases when in that respect is an increase in the sampling error. c. leeway 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 level best overstatement at the 95% confidence level set.8. The sampling results do not endure 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 pr oportion 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 margin necessary that represent the $12,600,000 population of factory equipment.Module V Accounts Receivable Aging Analysis1.a.The proportion of the total dollar add up receivable I included in the confirmation request is in Account Receivable Aging Analysis by go 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 balance in accounts receivable. b.In the event of no reply to a request for positiveconfirmation, as an auditor I need to subscribe for further requests, contact the manager and ask him to get a hold of the customer. In case of no response from the customer, I should examine the document I prevail in hand such as sales orders, sales invoices, shipping orders, and bills of ladin g. 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 enough of the allowance for uncollectible accounts. This helps the auditor to better calculate the amount that is uncollectible from customers2.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 sack 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 di sposition 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 armory 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 they were inform 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 overstate net income and make it look higher that its value. This practice is one of the earning inflation devices that can be use d to overstate net income.2.See excel document 2009 crosscut for auditadjustments. 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 similarly checked if the company he is auditing included these charges in year- break off 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 cant Reconciliation1. The rim Reconciliation- Dallas Dolalr affirm does not reconcile for declination 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. rough of the causes in case of non-reconciliation are There business leader have been an error performed by the brim 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 shortcut 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 statement covered the period 1/1/10 through 1/21/10 and the deposit in transit was credit i n 1/12/10, as an auditor I should be concerned that a lymph node 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 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 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 2 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 justly, it would show that the balance was infra $10,000,000 compensating balance.2 & 3. See Audit Reclassification entry at the shag of WP 1.C4. Yes the Reco rd 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 inquiring 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 shipboard investments.3. The auditors objective in the audit of marketable securitie s is to check -The existence of the securities-The will power of the securities, if the client owns them. Are the values of the securities shown in the statement logical 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 thepresentation 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.Biltrite Practice CaseModule III Control Testing Sales Processing1.The sampling plan in the design of controls does not provide tests about revenues and accounts receivables. The weakness 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 successful 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/occurrence is the course of action for the auditors.2 and 3 are attached 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 footing and the credit limits offered to customers are not above the limitation. However the bills of ladings that were missing keep the auditors skeptical and make them look further for material information. Also, the other thing that looks suspicious is the inflated earnings showed. The analytical procedures and attribute testing performed will the auditors to look further in regards of the sales recorded during the year, the customer balance d and the accounts receivable. Therefore, I believe that aggregate materiality threshold shouldnt be lowered 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 found 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 statis tical 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 customer, 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 t o 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 in come 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 overstate 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 app licable 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 statementcovered 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 c utoff 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 balance.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 investmen ts 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 sta te if the securities are current or noncurrent. Answers to questions 4 through 8 can be found in excel document 2009 Security.