Audit program design part ii Essay

With the exception of cash gross gross revenue, every transaction and f ar is ultimately included in integrity of two balance airplane accounts, accounts due or valuation reserve for spoiled accounts. There atomic number 18 eight-spot business functions for the gross revenue and collection bike. The foremost four processes argon for arranging exchanges, while every other class of minutes includes only one business function. The four gross revenue transaction functions argon necessary for getting the goods into the hands of customers, correctly musical noteing them, and reflecting the in airation in the accounting records. The remain four functions involve the collection and recording of cash, gross sales returns and allowances, write-off of regretful accounts, and providing for heavy(p) debt expense.Classes of movementsBusiness Functions gross salesProcessing customer dedicatesGranting creditShipping goodsBilling customers and recording salesCash ReceiptsProce ssing and recording cash receipts sales 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 analyseing for sales is as follows Customer orders Shipping Documents pair Sales invoices Sales Journals and General Ledger. (Arens, 2012, p. 455)Tests of ControlsFor each control, there should be at to the lowest degree one test of control, but there can be more than one. We volition gather evidence for internal controls by credentials Observation Inquiries of the customer and Re- actualizeance. The tests create audit evidence that support the ordinary assertions for the business cycle Existence and Occurrence to ensure that sales ar enter for shipments to genuine customersCompleteness All existing sales transaction atomic number 18 recordedAccuracy to ensure that amounts of sales for quantities shippe d is recorded and billed accurately, is summarized appropriately and is traceable to accounts receivables everyplacelook file cabinetPresentation and disclosure/ Classification Sales transaction are appropriately classified andCut-Off The sales are recorded in the accounting period in which these were incurred.We plan the following tests of controls for Sales and Collections enquiry of purchase orders from customers for evidence of customer approval Inspection of sales invoice for funding support Tracing Sale invoice figures to bill of lading and customer order Inspection of fold control file for initials of data control clerk authenticating 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 manipulate file totals to general rule book balance.Substantive Tests of TransactionsFor eac h transaction, there should be at least one strong test, but there 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 school or low amounts track down the sample of selected sales journal entries to its supporting documents equal , bill of lading and sales order inter alia , excessively check into 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 amoun ts on the sale invoice by re-computing price 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 procedures are substantive tests, they reduce the extent to which the auditor take 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 Misstatement discriminate gross margin division with previous(prenominal) Overstatement or understatement of sales fa milys (by merchandise line). and accounts receivable. contrast sales by month (by product line) Overstatement or understatement of sales over measure. and accounts receivable.Compare sales returns and allowances as a Overstatement or understatement of sales percentage 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. connect income statement accounts.Compare bad debt expense as a percentage of Uncollectible accounts receivable that get down 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 disorder of accounts receivable. bad debt expense also may fate fictitious accounts receivable.Compare aging categories as a percentage of Overstate ment or understatement of accounts receivable with previous years. allowance for uncollectible accounts 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 trollThe force de authorityment and payroll department cycle of Apollo situation 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 compulsory considering the balance sheet accounts regarding payroll are not of a poppycock nature (Arens, Elder, & Beasley, 2012). Transactions within the payroll cycle have t he potence for materiality and are therefore far more important when pattern 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 banter with employees.Substantive Test of TransactionsTests of transactions may happen during the scrutiny or internal control or may happen after the internal control has been tested depending on the most efficient appearance 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 fireside sheet tha t point gross pay, each deduction, net pay, and year to date totals for each employee (Louwers & Reynolds, 2007). Examination and comparison of this form, the acting payroll register, 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 card game 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 special deta iled testing (Arens, et al., 2012). Analytical procedures involve the use of current and historical information to make comparisons. If the comparison result differs from the expected then spare testing will be necessary.Compare stipend expenses to those from concluding 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 determin e if they correspond to the salaries authorized in the board minutes (Louwers & Reynolds, 2007).Acquisition and Payment CycleWith the achievement and 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 estimate conclusion is to check for existence by confirming that achievement demand, purchase order, receiving report, payment transactions and merchant statements are attached to the coupon.It take to be confirmed that the level of credit authorization is accurate, entrance 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 epoch 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 group and inspecting the chart of accounts and processes by linking the grouping through the chart of accounts as they mark 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 proces ses are intended to test 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.