INTEGRATED CASE APPLICATION 16-34
Conchata Rouse (a,b,and g)
Adam Mouhaumd(c,d,e, and f)
Profession Leonard Franklin
a. List those relationships, ratios, and trends that you believe will provide useful information about the overall reasonableness of accounts payable. You should consider income statement accounts that affect accounts payable in selecting the analytical procedures.
We have analyzed Pinnacle Manufacturing balance sheet dated December 31, 2009 to provide a fairly unqualified opinion. We plan to list some relationships, trends, and ratios that will offer an overall view of the company accounts payable ...view middle of the document...
b. Study Table 19-5 (p. 647) containing balance-related audit objectives and tests of details of balances for accounts payable to be sure you understand each procedure and its purpose. Prepare an audit program for accounts payable in a performance format, using the audit procedures in Table 19-5. The format of the audit program should be similar to Table 16-5 (p. 541). Be sure to include a sample size for each procedure.
Test of Details of Balances Audit Program for Pinnacle Manufacturing — Acquisition and Payment Cycle (Performance Format)
1. Compare individual expenses with previous years.
2. Compare individual asset and liability balances with previous years.
3. Compare individual expenses with budgets.
4. Compare gross margin percentage with previous years
5Compare inventory turnover ratio with previous years.
6. Compare prepaid insurance expense with previous years.
7. Compare commission expense divided by sales with previous years.
8. Compare individual manufacturing expenses divided by total manufacturing expenses with previous years.
c. Assume for requirement b that (1) assessed control risk had been high rather than low for each transaction-related audit objective, (2) inherent risk was high for each balance-related audit objective, and (3) analytical procedures indicated a high potential for misstatement. What would the effect have been on the audit procedures and sample sizes for requirement b?
The audit processes would be showed more considerably and sample sizes would rise in a circumstance where assessed control risk and inherent risk were high and analytical procedures showed a high chance for misstatements. It is likely that there would be proofof accounts payable whereas in part b that may not have been required.
d. Confirmation requests were sent to a stratified sample of 51 vendors listed in Figure 16-8 (p. 552). Confirmation responses from 45 vendors were returned indicating no difference between the vendor’s and the company’s records. Figure 16-9 (pp. 554–555) presents the six replies that indicate a difference between the vendor’s balance and the company’s records. The auditor’s follow-up findings are indicated on each reply. Prepare an audit schedule similar to the one illustrated in Figure 16-10 (p. 556) to determine the misstatements, if any, for each difference. The audit schedule format shown in Figure 16-10 can be downloaded using the Pinnacle link on the textbook Web...