Southeast Shoe Distributor (SSD) is a closely owned business that was founded 10 years ago by Stewart Green and Paul Williams. SSD is a distributor that purchases and sells men’s, women’s, and children’s shoes to retail shoe stores located in small- to mid-size communities. The company’s basic strategy is to obtain a broad selection of designer-label and name brand merchandise at low prices and resell the merchandise to small one-location retail stores that have difficulty obtaining reasonable quantities of designer and name brand merchandise. The company is able to keep the cost of merchandise low by (l) selectively purchasing large blocks of production overruns, overorders, mid- and late-season deliveries and last season’s stock from manufacturers and other retailers at significant discounts, (2) sourcing in-season name-brand and branded designer merchandise directly from factories in Brazil, Italy, and Spain, and (3) negotiating favorable prices with manufacturers by ordering merchandise during off-peak production periods and taking delivery at one central warehouse.

During the year, the company purchased merchandise from over 50 domestic and international vendors, independent resellers, manufacturers and other retailers that frequently had excess inventory. Designer and name brand footwear sold by the company during the year include the following: Amalfi, Clarks, Dexter, Fila, Florsheim, Naturalizer, and Rockport. At the current time, SSD has one warehouse located in Atlanta, GA. Last year, SSD had 123 retail shoe store customers and had net sales of $7,311,214. Sales are strongest in the second and fourth calendar-year quarters with the first calendar-year quarter substantially weaker than the rest.

BACKGROUND SSD is required to have an audit of its annual financial statements to fulfill requirements of loan agreements with financial institutions. This audit is to be completed in accordance with the AICPA professional standards for the audit of nonpublic companies. Your audit firm is currently planning for the Fiscal 2008 audit in accordance with these professional standards. SSD has the following general ledger accounts related to sales and cash collection activities:
■ Sales ■ Uncollectible Accounts Expense ■ Sales Discounts ■ Accounts Receivable ■ Sales Returns and Allowances ■ Allowance for Uncollectible Accounts In accordance with the professional standards, Susan Mansfield, audit manager, reviewed SSD’s control environment, risk assessment process, and monitoring system and has assessed them as strong. Additionally, Susan determined that tolerable misstatement should be $40,000 for the revenue cycle and that acceptable audit risk should be low. Bill Zander, staff auditor, assessed inherent risk related to sales, cash receipts, and accounts receivable and prepared the enclosed audit risk matrix (referenced in the top right hand corner as R SO and R 50-1). As the audit senior, you have been assigned responsibility for selecting audit procedures to perform for the revenue cycle that will achieve the desired acceptable audit risk at the lowest possible cost.

REQUIRED [1] Complete step 3 of the audit program R 1-3 by selecting specific audit tests from your work in the previous two SSD audit case assignments (see R 40-1, R 40-2, R 41-1, R 41-2, R 42-1, R 42-2, R 43 and R 44)

. Document your work in audit schedules R 1-3, R 40-1, R 40-2, R 41-1, R 41-2, R 42-1, R 42-2, R 43 and R 44.

[2] Assess planned control and detection risk by completing step 4 of the audit program R 1-3. Document completion of your work in audit program R 1-3. Record your assessment in audit schedule R-SO. Document in audit schedules R 50-2 and R 50-3 the specific tests by number that you have chosen, the assertion(s) covered by each test, and the level of assurance (high, medium, or low risk) provided.

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Reference R1-3 Prepared by: BZ Date: 6/12/08 Red by: Southeast Shoe Distributor, Inc. Revenue Cycle Planning Audit Program- Risk Assessment and Selection of Audit Tests For the Year Ended December 31, 2008 Audit Procedures 1. Complete the acceptable audit risk section of the revenue cycle "planning audit risk" matrix by obtaining the acceptable audit risk from the general planning audit schedules. 2. Form an initial assessment of inherent risk related to revenue cycle accounts and complete the initial inherent risk assessment section of the 'planning audit risk matrix 3. Select audit tests to perform by circling the procedure number on the audit tests planning matrices. Initial Date Ref. BZ 5/12/08 R60 82 6/12/08 R50 R50-1 R40-1 R40-2 R 41-1 R41-2 R42-1 R42-2 R43 R44 4. Based on the procedures selected in audit step 3, complete the planned control risk and detection risk sections of the revenue cycle "planning audit risk matrix. R50 R50-2 R50-3