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11B-2 Assume that you have been assigned to the audit of Keystone after audit planning has occurred. Review the planning information in Appendix 6C and

11B-2 Assume that you have been assigned to the audit of Keystone after audit planning has occurred. Review the planning information in Appendix 6C and the audit plan for the accounts receivable and revenue Schedule B-6. The manager on the engagement has given you the task of reviewing the monthly revenue report on Schedule B-11.
A. Based on your review of the monthly report, describe any unusual relationships that might indicate a risk of misstatement of revenues based on your knowledge of the company derived from a review of the information on Schedule B-11.
B. Identify any procedures on the audit plan for receivables and revenue that might address the risks associated in part (a).
C. Design two other procedures that would address the risks identified in part (a). image text in transcribed
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MATERIALITY FOR PLANNING Because the firm has experienced steady growth in sales and earnings over the last three years, we believe that operating results are the most appropriate basis for estimating materiality for planning as described below: The range for materiality for planning is from $32,000 to $920,000. Based on the company's steady growth in sales and earnings Pue275 and the fact that the company is not a public company, we have selected $300,000 as a reasonable materiality amount for planning purposes. Details on account and disclosure performance materiality and tolerable misstatement amounts are provided in the related detailed documentation. 13. Review credit memoranda for sales returns and allowances through the last day of fieldwork MP 2/16/6 to determine if an adiustment is needed in rocord the itame ae of unar-and 15. Ascertain whether any accounts have been assigned, pledged, or discounted by review of W7 2/13/6 agreements and confirmation with banks. 16. Ascertain by inquiry whether any accounts are owed by employees or related parties such as officers, directors, or shareholders, and a. Obtain an understanding of the business purpose for the transactions that resulted in the balances. b. Ascertain the amounts involved. c. Confirm the balances. \begin{tabular}{|c|c|c|c|c|c|c|c|c|c|} \hline & \multicolumn{6}{|c|}{\begin{tabular}{l} KEYSTONE COMPUTERS \& NETWORKS INC. \\ Monthly Sales Report \\ For the Three Years Ended 12/31/X5 \end{tabular}} & & & \begin{tabular}{l} B-11 \\ WL \\ 1/9/X6 \end{tabular} \\ \hline & \multicolumn{3}{|c|}{ Sales of Computers } & \multicolumn{3}{|c|}{ Consulting Resenue } & \multicolumn{3}{|c|}{ Service Revenae } \\ \hline & 203 & 204 & 205 & 203 & 204 & 205 & 203 & 204 & 205 \\ \hline January & 3,348,340 & 3,479,482 & 3,268,584 & 3,626,893 & 3,521,682 & 3,180,808 & 342,440 & 341,981 & 307.519 \\ \hline February & 3,365,453 & 3,692,918 & 3,593,775 & 4,145,019 & 3,519.281 & 3,328,754 & 369,309 & 390.835 & 348,522 \\ \hline March & 3,667,774 & 3,782,262 & 3,781,385 & 3,857.171 & 3.849 .059 & 3,772,588 & 369,310 & 366,410 & 378,522 \\ \hline April & 3,741,928 & 3,638,318 & 3,176,864 & 3,799.601 & 3,802,120 & 3,402,726 & 372,440 & 390,835 & 359.525 \\ \hline May & 3,810,378 & 3,628,391 & 3,360,305 & 3,914,740 & 3,708,240 & 3,513,685 & 376,180 & 366,408 & 348,522 \\ \hline June & 3,747,632 & 3,797,153 & 3,727,187 & 3.799 .601 & 3.942,939 & 4.105,463 & 399,610 & 415,263 & 389,174 \\ \hline July & 3.884,532 & 3,484,446 & 3,318,613 & 4,202,589 & 3.708 .240 & 3,550,671 & 396,180 & 390.835 & 348.874 \\ \hline August & 3,873,124 & 3,742,554 & 3.568,760 & 3,972,310 & 4,083,758 & 3,772,588 & 368,810 & 366,408 & 348,522 \\ \hline September & 3,850,307 & 3,980,806 & 3,885,613 & 3,914,740 & 3,942,939 & 4,290,394 & 389.510 & 390,535 & 409,525 \\ \hline October & 3,998,615 & 3,792,190 & 3.160 .187 & 4,317,728 & 4,083,758 & 3,883,546 & 421.750 & 391,335 & 369,274 \\ \hline November & 4,186,852 & 3.841,826 & 3,539.576 & 4,202,589 & 4,271,517 & 4,179.435 & 385,780 & 390,635 & 348.874 \\ \hline December & 4,203,965 & 4.030,442 & 3,964,826 & 4,145.019 & 4.318,457 & 4,697,241 & 376,580 & 366,408 & 368,924 \\ \hline Total & 45,678,900 & 44,890,788 & 42,345,675 & 47,898,000 & 46.751 .990 & 45.677 .899 & 4.567 .899 & 4.567 .888 & 4,325,777 \\ \hline \end{tabular} Performed by Procedure Initials Date Sales Transactions 1. Obtain an aged trial balance of accounts receivable as of 12/31/X5. 2. Select a sample of customers' accounts at 12/31/X5 for positive confirmation usingt probability-proportional-to-size sampling based on the following parameters: a. Risk of incorrect acceptance of 5%. b. Tolerable misstatement of $150,000. c. Expected misstatement of $20,000. 3. Use generalized audit software to: a. Foot the master file of accounts receivable at 12/31/XS. b. Test the client-prepared aging of accounts receivable. c. Select the specific accounts for confirmation. 4. Mail accounts receivable confirmation requests. 5. Send second requests for all unanswered confirmation requests. 6. For confirmation requests to which no reply is received, perform the following alternative procedures: a. Test items subsequently paid to remittance advices that identify the specifie invoices paid. MP1/6/16 130 of 315 Aa b. For items not paid, inspect the invoices and delivery receipts for the sales transactions making up the account balance. MP3/16/6 7. Resolve exceptions noted on confirmation requests. 8. Review credit files for customers with accounts receivable above $150,000 at 12/31/XS. Investigate any indications of fictitious accounts. 9. Summarize the results of the confirmation procedures. MP2/16/X6 10. Revlew the adequacy of the allowance for uncollectible accounts by performing the following procedures: a. Review the aged trial balance of accounts receivable with the president. b. Review confirmation exceptions for indications of disputed amounts. c. Analyze and review trends in the following relationships: (1) Accounts receivable to net sales. (2) Allowance for bad debts to accounts receivable. (3) Bad debt expense to net sales. 11. At year-end, review the file of sales invoices that ate waiting to be matehed with delivery receipts for any sales transactions that were not executed and, therefore, should be recorded in the subsequent period. 12. For all sales recorded in the last week of the year, inspect the related delivery receipt to determine that the sale occurred before 12/31/X5. Assume that you have been assigned to the audit of Keystone after audit planning has occurred. Review the planning information in Appendix 6C of Chapter 6 and the audit plan for the accounts receivable and revenue ( Schedule B-6). The manager on the engagement has given you the task of reviewing the monthly revenue report on 1 Schedule B-11. a. Based on your review of the report, describe any unusual relationships that might indicate a risk of misstatement of revenues based on your knowledge of the company derived from a review of the information on Schedule B-12. b. Identify any procedures on the audit plan for receivables and revenue that might address the risk(s) identified in part (a). c. Design two other procedures that would address the risk(s) identified in part (a)

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