Audit program design part ii Essay

With the exception of cash gross revenue, every transaction and amount is ultimately included in maven of two balance sheet accounts, accounts receivable or allowance for tough accounts. There argon eight business functions for the changes and collection cycle. The first quadruple processes be for recording sales, while every other class of transactions includes only one business function. The four sales transaction functions atomic number 18 needed for getting the goods into the hands of customers, correctly billing them, and reflecting the information in the write up records. The remaining four functions involve the collection and recording of cash, sales returns and allowances, write-off of uncollectible accounts, and providing for bad debt disbursement.Classes of transactionsBusiness Functionsgross revenueProcessing customer ordersGranting creditShipping goodsBilling customers and recording salesCash ReceiptsProcessing and recording cash receipts sales events returns and allowancesProcessing and recording sales returns and allowances write-off of uncollectible accountsWriting off uncollectible accounts receivable Bad debt expenseProviding for bad debts(Arens, 2012, p.443)The direction of testing for sales is as follows Customer orders Shipping Documents Duplicate Sales accountings Sales Journals and General Ledger. (Arens, 2012, p. 455) studys of ControlsFor for apiece one go, there should be at least one test of control, but there can be more than one. We get out come across evidence for intrinsic controls by Documentation Observation Inquiries of the client and Re-performance. The tests create scrutinise evidence that support the common assertions for the business cycle Existence and item to ensure that sales atomic number 18 preserve for shipments to genuine customersCompleteness All existing sales transaction are recordedAccuracy to ensure that amounts of sales for quantities shipped is recorded and billed accurately, is summarize d appropriately and is traceable to accounts receivables master filePresentation 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 future(a) tests of controls for Sales and CollectionsExamination of purchase orders from customers for evidence of customer approval Inspection of sales invoice for supporting documentation Tracing Sale invoice figures to bill of lading and customer order Inspection of batch control file for initials of entropy control clerk au soticating sign offFollow up on the sequential pattern of Shipping documents Examination of file for batch totals and initials of data control clerk Inspect the internal verification documentation package and Re-perform reconciliation of customer debtors master file totals to general ledger balance.Substantive Tests of TransactionsFor each transaction, there should be at least one real test, but the re can 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 business 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 sample of selected sales journal entries to its supporting documents like , bill of lading and sales order inter alia , likewise collapse duplicate sales invoice issued (if any)Trace information as per shipping 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 terms and extension on the sameTrace 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. analytic ProceduresBecause analytical processs 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, non 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 Misstatement equation gross margin helping with previous Overstatement or understatement of sales days (by product line). and accounts receivable.Compare sales by month (by product line) Overstatement or un derstatement of sales over time. and accounts receivable.Compare sales returns and allowances as a Overstatement or understatement of sales contribution of gross sales with previous years 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 Uncollectible 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 outstanding with previous years allowance for uncollectible accounts and and related turnover of accounts receivable. bad debt expense also may sharpen fictitious accounts receivable.Compare aging categories as a percentage of Overstatement or understatement of accounts receivable with previous years. allowance for uncollectible accounts and bad debt expe nse.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 personnel and payroll 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 required considering the balance sheet accounts regarding payroll are not of a material constitution (Arens, Elder, & Beasley, 2012). Transactions within the payroll cycle have the potential for materiality and are therefore far more important when designing the audit program.Test of ControlsInternal 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 discussion with employees.Substantive Test of TransactionsTests of transactions may happen during the testing or internal control or may happen after the internal control has been tested depending on the nigh efficient way to conduct the audit program. Tests of transactions for the personnel and payroll cycle are of high importance because of the volume of transactions 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 take home sheet that indicate gross pay, each deduction, net pay, and year to date totals for each employee (Louwers & Reynolds, 2007). Examination and comparison of this form, th e corresponding payroll cross-file, and the corresponding canceled checks will make 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 precede to identifying possible misstatements that require additional detailed testing (Arens, et al., 2012). Analytical procedures involve the use of current and historical information to make comparisons. If the comparis on result differs from the pass judgment then additional testing will be necessary.Compare salary expenses to those from last year in order to determine 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 establish whether or not there are misstatements in payroll expenses (Arens, et al., 2012).Compare sales to last year and review these in order to determine if the changes in payroll and sales are relative from one year to the next. 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 salaries and determine if they correspond to the salaries authorized in the board minutes (Louwers & Reynolds, 2007).Acquisition and Payment CycleWith the acquisition an d payment cycle, there are three main transactions in this cycle, which entail Attainment of merchandises and amenities,Cash distribution, and purchase returns, andAllowances and buying reductions.The first assessment goal is to check for existence by confirming that acquisition demand, purchase order, receiving report, payment transactions and merchant statements are attached to the coupon.It needs to be confirmed that the level of credit authorization is accurate, becharm of acquisitions are from approved merchants 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 in sequence order. Transactions are outlined to coupons and journals. Additionally is to assess controls for correctness by validating t hat 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 methodical processes are intended 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. Once 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 integrated approach (14th Ed.). New York, New York Pearson.Louwers, T. J., & Reynolds, J. K. (2007). Apollo Shoes Casebook. New York, New York McGraw-Hill.