24-33 (Objective 24-6) In your audit of Aviary Industries for calendar year 2013, you found a number of matters that you believe represent possible adjustments to the company's books. These matters are described below. Management's attitude is that "once the books are closed, they're closed," and management does not want to make any adjustments. Planning materiality for the audit was $100,000, determined by computing 5% of expected income before taxes. Actual income before taxes on the financial statements prior to any adjustments is $1,652,867. Possible adjustments: 1. Several credit memos that were processed and recorded after year-end relate to sales and accounts receivable for 2013. These total $26,451. The appropriate test for the ending balance in the cash accounts heavily depend on the starting assessment of test of controls and controls risk and test of transactions for the receipts of cash. The control of the company over the disbursement of cash assists the auditor for the determination of the disbursed cash and that the disbursements of cash are recorded in exact amount. If the evaluation result is under control, test of controls are adequate, and it is appropriate to reduce the test of details of balances. 2. Inventory cutoff tests indicate that $25,673 of inventory received on December 30, 2013, was recorded as purchases and accounts payable in 2014. These items were included in the inventory count at vear-end and therefore were included in ending inventory. The financial statement must be reinstated so as to take into accounts the effect of inventory and accounts payable which is not recorded in the financial statements although the same has been taken into physical stock. The affected amount were $25673 and the affected accounts were purchases and accounts payable of the financial statements. 3. Inventory cutoff tests indicate several sales invoices recorded in 2013 for goods that were shipped in early 2014. The goods were included in inventory even though they were set aside in a separate area. The total amount of these shipments was $41,814. This is important because physical inventory could changd throughout the year. In order to enhance the accurate cutoff, the auditor should tests that have physical observation of inventory with the cutoff accounts payable. If this is not done the acccounts payable or charge of goods sold can be understated or overstated. The auditor gather cutoff information during the physical inventory to determine the accurate cutoff was established 4. The company wrote several checks at the end of 2013 for accounts payable that were held and not mailed until January 15, 2014. These totaled $43,671. Recorded cash and accounts payable at December 31, 2013, are $2,356,553 and $2,666,290, respectively. Reconciliation shoudl be prepared and then accounts payable along with cash mus be recorded on the balance sheet before taking into account of the effect checks that were not mailed. The affected amouint were $43671 and the affected account were the banks, cash, and accounts payable. 5. The company has not established a reserve for obsolescence of inventories. Your tests
