Blue Mountain Storage
Audit Program
Cash & Equivalents
March 31, 20X9
REF
1.
AUDIT PRODEDURES
Confirm bank accounts/loans using the standard bank confirmation
forms.
2.
Review bank reconciliations done by client. Complete any bank recs
not done by client. For at least one month of your choice, prepare a
four-column proof of cash.
3.
Reclassify any cash that cannot be used for current purposes.
4.
Complete the petty cash worksheet. Prepare an adjusting entry to
record any cash used, if material.
5.
Age the outstanding checks by the following categories: under 30 days,
30-60 days, and over 60 days. Checks older than 60 days should be
reclassified as a current liability.
6.
Review transfers between bank accounts, if any, around March 31 for
kiting.
COMPLETED BY
(initials, date)
A
Blue Mountain Storage
Audit Program
Investments
March 31, 20X9
REF
AUDIT PRODEDURES
1. Confirm any securities with the broker by preparing a letter to the
broker requesting a statement as of March 31 be mailed directly to the
auditors.
COMPLETED BY
(initials, date)
2. Vouch purchases of securities to receipt and statement from broker.
3. Ensure that investments are valued properly on the balance sheet date
and any unrealized/realized gains/losses are properly recorded.
B
Blue Mountain Storage
Audit Program
Accounts Receivable
March 31, 20X9
REF
1.
AUDIT PRODEDURES
Select a sample of enough receivable balances to accumulate 80% of
the total receivable balance. Document your sampling plan.
2.
Confirm and/or use subsequent payments test to verify legitimacy of the
balance in your sample. Prepare a positive confirmation letter for at
least one account and a negative confirmation letter for at least one
account. The rest of the sample should be verified through a
subsequent payment test.
3.
Ensure that receivables are valued at net realizable value by
determining that bad debts expense and write-offs are recorded
properly.
4.
Determine if any related party receivables exist (employees, relatives,
etc.) and, if so, document this for later inclusion in the notes to the
financial statements.
COMPLETED BY
(initials, date)
C
Blue Mountain Storage
Audit Program
Inventory
March 31, 20X9
REF
1.
AUDIT PRODEDURES
Agree the physical count observed by auditors on balance sheet date
with the general ledger.
2.
Prepare a worksheet (see template) showing quantity and dollars of
beginning inventory, purchases, sales, and ending inventory. Agree
COGS, Sales, and Ending Inventory totals to financial statements.
Determine that the cost flow method (FIFO, Avg Cost, etc.) used by
client, if any, is appropriate and properly reflected on the books.
3.
Vouch purchases of inventory to invoice/receipt.
COMPLETED BY
(initials, date)
D
Blue Mountain Storage
Audit Program
Other Current Assets
March 31, 20X9
REF
1.
AUDIT PRODEDURES
Vouch prepaid insurance to invoice/receipt and test for proper
amortization.
COMPLETED BY
(initials, date)
E
Blue Mountain Storage
Audit Program
Property & Equipment
March 31, 20X9
REF
1.
AUDIT PRODEDURES
Prepare an analysis of all changes to PP&E and Accum. Depr. during
the quarter similar to Figure 13.1 in textbook.
2.
Determine that the capitalization/depreciation policy, if any, is
reasonable. If a policy doesn’t exist, create one for client in writing and
put it in the working papers. See example.
3.
Review repairs/maintenance expense for any items that should be
capitalized.
4.
For additions: vouch to invoice/receipt and other supporting
documentation, and determine that the life and any salvage value
assigned are reasonable. (You would normally also physically inspect
additions but this is obviously not feasible for this practice set.)
5.
Vouch title of real property to supporting documentation.
6.
For any dispositions, determine that the gain/loss is calculated
correctly.
7.
Determine if the depreciation method used by client sufficiently follows
GAAP (i.e. matching principle). If so, test depreciation expense
calculation. If not, recalculate depreciation on a GAAP basis. Agree
depreciation expense to the amounts reported on the income
statement.
COMPLETED BY
(initials, date)
F
Blue Mountain Storage
Audit Program
Current Liabilities
March 31, 20X9
REF
1.
AUDIT PRODEDURES
Determine that Form I-9 was completed and submitted in a timely
manner by the employee.
2.
Review calculation of gross payroll, including matching hours to
approved time cards.
3.
Review for proper calculation of Social Security, Medicare and other
deductions.
4.
Ensure that income tax is being deducted properly (per Form W-4 and
excerpt from IRS Pub. 15A).
5.
Determine that the quarterly payroll tax report (IRS Form 941) is being
submitted in an accurate and timely manner.
6.
Review for proper calculation of compensated absences and agree to
time cards.
7.
Ensure that proper accruals for wages and compensated absences are
made.
8.
Test reasonableness of sales tax payable using analytical review.
9.
Perform search for unrecorded liabilities by examining payments made
subsequent to balance sheet date. Use the form provided to document
your work.
10.
Prepare a letter of legal inquiry and send to the lawyers (Duffy &
Spencer, Attorneys at Law, PO Box 500, Walla Walla, WA 99362).
[Note: this letter has been drafted for you; see copy on website.] The
letter should also include a request for information on any unpaid legal
fees. Based on lawyer’s response, determine if any contingent liability
should be booked and/or disclosed and if any accrual of any
unrecorded professional fees is necessary.
11.
Determine that property tax payable is being accounted for properly
under the accrual method.
COMPLETED BY
(initials, date)
H
Blue Mountain Storage
Audit Program
Long-term Liabilities
March 31, 20X9
REF
1.
AUDIT PRODEDURES
Confirm mortgage balance and terms with bank (usually confirmed with
cash on standard bank confirmation form). Verify current balance by
preparing an amortization table.
2.
Determine that interest is being calculated and recorded correctly, per
amortization table.
3.
Reclassify any liabilities from long-term to short-term if necessary.
4.
Agree all terms to those on the original note.
5.
Schedule principal payments on note payable for each of next five
years and then one lump sum for future payments after that (required
note disclosure per GAAP).
COMPLETED BY
(initials, date)
I
Blue Mountain Storage
Audit Program
Equity
March 31, 20X9
REF
1.
AUDIT PRODEDURES
Test income statement accounts using analytical review. For rental
revenues, use data on unoccupied units to estimate what rental
revenue should be. Research any material variances.
2.
For expenses, prepare a spreadsheet showing average quarterly
expense for the previous year compared with the quarter under audit
and check for reasonableness.
3.
A major concern in a sole proprietorship or partnership is the
intermingling of personal with business transactions, particularly the
paying of personal expenses with business funds, which creates
illegitimate tax deductions. Scan expenses entries in the GL to see if
you can spot any personal transactions.
COMPLETED BY
(initials, date)
J
Blue Mountain Storage
Audit Program
Internal Controls
March 31, 20X9
REF
1.
AUDIT PRODEDURES
Cash Disbursements Test: Randomly pick six checks during the
quarter and test for: reasonable account distribution, reasonable
clearing time (within a month), and proper supporting documentation.
Document sampling plan. Use the template provided.
2.
Document internal control over cash disbursements by using one of the
acceptable three methods. Disbursements include checks and petty
cash.
3.
Cash Receipts Test: Using the template provided, randomly pick three
sales invoices (see invoice detail listing) and three inventory sales
receipts (see receipts for inventory sales listing) that occurred during
the quarter. Test that proper prices were applied. Trace receipts from
both mailed invoices and inventory sales through to deposits on bank
statement, noting whether all receipts are deposited in tact and that
deposits made in a timely manner. Document sampling plan.
4.
Document internal controls over cash receipts using one of the three
acceptable methods. The method used to document receipts must be
different than the one used for disbursements. Receipts come in mail
from customer accounts and from sales of inventory.
5.
Make a list of any preliminary internal control concerns that you have.
Include in your analysis a review of all controls within the five different
categories of internal controls. At the end of your memo, provide a
conclusion about your assessment of control risk. Based on your
assessment of control risk, discuss how much detection risk you are
willing to accept and to what extent you plan to perform substantive
tests. [Note: for a small business with little if any segregation of duties,
control risk is normally assessed at maximum; thus, full substantive
testing is done and little, if any, reliance is placed on internal controls.]
6.
As required by SAS#99, speculate on how (and by whom) fraud could
occur at Blue Mtn. Storage. Document your analysis in a memo.
7.
Document your knowledge of any illegal acts (or potential illegal acts)
discovered during the audit and how these issues are to be resolved.
COMPLETED BY
(initials, date)
IC