Alpine Cupcakes, Inc. Audit Case Assignments Assignment: Before beginning the assignment, take a moment to look through the papers in this module. Note in the lower left-hand corner that some documents are audit work papers created by Garcia and Foster CPAs as they conducted the audit. Note that other papers are client documents that Garcia and Fo collected and kept in support of their audit. Finally, note the numbering system in th corner and how each paper within the audit is numbered and linked back to the audit program ster n this part of your assignment, you will examine the firm's audit documentation in relation to the audit of ne's accounts receivable and sales processes and accounts. Please complete the following tasks QResearch, cite, and summarize (in one or two sentences per standard identified) the auditing standards that address Garcia and Foster, CPA's, responsibility in relation to sending accounts ivable confirmations. Identify the most relevant paragraph(s) in each standard. Q2. Review the accounts receivable narrative (AR. 1.1) and review the accounts receivable flowchart AR. 1.2) to identify all of the internal control weaknesses for the accounts receivable and sales processes. Provide one or two sentences on why each item identified is a weakness. This question lates to Step 2 of the Garcia and Foster Audit Plan Q3. Based on your review of the accounts receivable test of controls procedures (workpapers AR.2.1 to AR.2.4), you believe that there were some issues with the audit work performed. Review in detail auditing procedures from the audit program and the related documentation. Pay particular attention to their implementation of the attribute sampling procedures-their sample selection process and evaluation of the results. Identify any of the following issues: Did they perform all of the steps associated with the audit program? Did they perform the steps accurately? If not, specifically state the nature of the problem and follow up on it to the extent possible with the information given. Do you see any other issues or problems with the auditors' work or client documentation? a. b. 2 c. Alpine Cupcakes, Inc. Corporate Sales and AR Flowchart Audit Year December 31, 20x2 Garcia and Foster, CPAs Performed By: 7E5 Date:on1712023 Reviewed By: SDM Date: sh9/20x3 Lisa Mercer Shippine Lisa Mercer Match PO, sales order, shipping doc. Sales order Customer PO Ship product Create Sales approval invoice Invoice Signed shipping doc. Miguel Lopez Prepare statements Garcia and Foster Audit Workpaper AR.12 pg. 1 of 1 103 Alpine Cupcakes, Inc. Sales and AR Narrative and Walkthrough Audit Year December 31, 20X2 Performed By: Date: lon Reviewed By: SDM Date: a/19/20x3 7ES Sales, Delivery Alpine's goods are delivered to customers on a weekly basis. The delivery person receives a shipping report from Lisa Mercer and gives the report to the customer upon delivery. The customer then reviews and signs the shipping report and sends the signed report back with the delivery person. The delivery personnel return the signed shipping reports to Lisa Mercer AR Process Lisa Mercer bills each corporate customer at the end of the month for purchases that month that have been delivered. The company recognizes the revenue and related receivable with FOB Destination revenue recognition policy. Lisa also bills shipping costs, of $0.20 per dozen, on a monthly basis at the end of the month. Lisa segregates product and shipping costs into separate bills within the AR account (1200). The invoice includes a due date for customer payments within 30 days of the sales transaction. Lindsay McKenna, AR manager, will review any significant sales transactions on a monthly basis. Prior to sending each corporate customer an invoice, Lisa ensures that the sales order and corporate purchase order (PO) are complete and without discrepancies. She compares quantities as well as cupcake types with the quantities and types of cupcakes shipped. She also reviews the customer's signatures on the shipping reports. The customers sign upon receipt of the cupcakes to ensure all is in order. When the documentation is complete, Lisa creates an invoice for both product and shipping and sends the bills to the customer. In addition to the sales invoice each month, Alpine provides corporate customers with a Monthly Customer Account Summary which includes current month transactions (new invoices and customer payments) and any past due accounts. If accounts are past due, Lisa will send a second invoice. Miguel Lopez is in charge of sending the monthly customer statements and discussing any discrepancies over the statements with the customers. Miguel Lopez performs random checks on documents by reconciling the sales order, shipping documents, and sales invoice to validate that all revenue recorded was shipped and that an external Po existed for the transaction. If an external PO does not exist, he will select another transaction to validate. Each department keeps a log of the ordering of document numbers used. Alpine numbers all documents (sales orders, shipping documents, etc.) sequentially. Each employee in charge of creating the documents checks each day to ensure numbers begin each morning with the correct number Miguel reviews the logs once a month. Currently, Alpine does not offer a discount for early payment, but the Company is considering a change in this policy Uncollectible Accounts Alpine Cupcakes follows the direct write-off method. Discussions with Lindsay Mckenna reveal that account write-offs are very rare (only once in the last 2 years). She credits Lisa Mercer's careful credit checking ability and Lisa's close relationship with each corporate customer for the lack of necessity to Garcia and Foster Audit Workpaper AR.1.1: pg. 2 of 3 Alpine Cupcakes, Inc. Sales and AR Narrative and Walkthrough Audit Year December 31, 20x2 Performed By: 7ES Date: on7ons Reviewed By: SDM Date: 291203 Uncollectible Accounts (continued write off accounts. She does reveal that Alpine will work with customers who have temporary difficulties with payments, and that the Company will continue to sell products to such customers as long as they are making payments on past due amount Sales Returns and Allowances Alpine has policies in place to ensure customer satisfaction with al goods. First, customers inspect goods upon delivery and sign for the goods with the delivery person, attesting to the condition of the goods upon delivery. Second, if a customer rejects a product, the delivery person calls Lisa Mercer, an Lisa arranges for substitute cupcakes to be delivered within 24 hours. Second, customers must return goods not rejected at receiving within 24 hours. Lisa creates a credit memorandum and credits the customer's AR account for the returned goods at sales price. Lindsay McKenna (AR manager) reviews all credit memorandums. Lisa Mercer is responsible for creating a quarterly estimate of sales returns and allowance. Because of the 24-hour return policy and the Alpine policy requiring customers to inspect goods upon delivery, th estimate for returns and allowances has always been immaterial Garcia and Foster Audit Workpaper AR.1.1: pg.3o Alpine Cupcakes, Inc. Audit Case Assignments Assignment: Before beginning the assignment, take a moment to look through the papers in this module. Note in the lower left-hand corner that some documents are audit work papers created by Garcia and Foster CPAs as they conducted the audit. Note that other papers are client documents that Garcia and Fo collected and kept in support of their audit. Finally, note the numbering system in th corner and how each paper within the audit is numbered and linked back to the audit program ster n this part of your assignment, you will examine the firm's audit documentation in relation to the audit of ne's accounts receivable and sales processes and accounts. Please complete the following tasks QResearch, cite, and summarize (in one or two sentences per standard identified) the auditing standards that address Garcia and Foster, CPA's, responsibility in relation to sending accounts ivable confirmations. Identify the most relevant paragraph(s) in each standard. Q2. Review the accounts receivable narrative (AR. 1.1) and review the accounts receivable flowchart AR. 1.2) to identify all of the internal control weaknesses for the accounts receivable and sales processes. Provide one or two sentences on why each item identified is a weakness. This question lates to Step 2 of the Garcia and Foster Audit Plan Q3. Based on your review of the accounts receivable test of controls procedures (workpapers AR.2.1 to AR.2.4), you believe that there were some issues with the audit work performed. Review in detail auditing procedures from the audit program and the related documentation. Pay particular attention to their implementation of the attribute sampling procedures-their sample selection process and evaluation of the results. Identify any of the following issues: Did they perform all of the steps associated with the audit program? Did they perform the steps accurately? If not, specifically state the nature of the problem and follow up on it to the extent possible with the information given. Do you see any other issues or problems with the auditors' work or client documentation? a. b. 2 c. Alpine Cupcakes, Inc. Corporate Sales and AR Flowchart Audit Year December 31, 20x2 Garcia and Foster, CPAs Performed By: 7E5 Date:on1712023 Reviewed By: SDM Date: sh9/20x3 Lisa Mercer Shippine Lisa Mercer Match PO, sales order, shipping doc. Sales order Customer PO Ship product Create Sales approval invoice Invoice Signed shipping doc. Miguel Lopez Prepare statements Garcia and Foster Audit Workpaper AR.12 pg. 1 of 1 103 Alpine Cupcakes, Inc. Sales and AR Narrative and Walkthrough Audit Year December 31, 20X2 Performed By: Date: lon Reviewed By: SDM Date: a/19/20x3 7ES Sales, Delivery Alpine's goods are delivered to customers on a weekly basis. The delivery person receives a shipping report from Lisa Mercer and gives the report to the customer upon delivery. The customer then reviews and signs the shipping report and sends the signed report back with the delivery person. The delivery personnel return the signed shipping reports to Lisa Mercer AR Process Lisa Mercer bills each corporate customer at the end of the month for purchases that month that have been delivered. The company recognizes the revenue and related receivable with FOB Destination revenue recognition policy. Lisa also bills shipping costs, of $0.20 per dozen, on a monthly basis at the end of the month. Lisa segregates product and shipping costs into separate bills within the AR account (1200). The invoice includes a due date for customer payments within 30 days of the sales transaction. Lindsay McKenna, AR manager, will review any significant sales transactions on a monthly basis. Prior to sending each corporate customer an invoice, Lisa ensures that the sales order and corporate purchase order (PO) are complete and without discrepancies. She compares quantities as well as cupcake types with the quantities and types of cupcakes shipped. She also reviews the customer's signatures on the shipping reports. The customers sign upon receipt of the cupcakes to ensure all is in order. When the documentation is complete, Lisa creates an invoice for both product and shipping and sends the bills to the customer. In addition to the sales invoice each month, Alpine provides corporate customers with a Monthly Customer Account Summary which includes current month transactions (new invoices and customer payments) and any past due accounts. If accounts are past due, Lisa will send a second invoice. Miguel Lopez is in charge of sending the monthly customer statements and discussing any discrepancies over the statements with the customers. Miguel Lopez performs random checks on documents by reconciling the sales order, shipping documents, and sales invoice to validate that all revenue recorded was shipped and that an external Po existed for the transaction. If an external PO does not exist, he will select another transaction to validate. Each department keeps a log of the ordering of document numbers used. Alpine numbers all documents (sales orders, shipping documents, etc.) sequentially. Each employee in charge of creating the documents checks each day to ensure numbers begin each morning with the correct number Miguel reviews the logs once a month. Currently, Alpine does not offer a discount for early payment, but the Company is considering a change in this policy Uncollectible Accounts Alpine Cupcakes follows the direct write-off method. Discussions with Lindsay Mckenna reveal that account write-offs are very rare (only once in the last 2 years). She credits Lisa Mercer's careful credit checking ability and Lisa's close relationship with each corporate customer for the lack of necessity to Garcia and Foster Audit Workpaper AR.1.1: pg. 2 of 3 Alpine Cupcakes, Inc. Sales and AR Narrative and Walkthrough Audit Year December 31, 20x2 Performed By: 7ES Date: on7ons Reviewed By: SDM Date: 291203 Uncollectible Accounts (continued write off accounts. She does reveal that Alpine will work with customers who have temporary difficulties with payments, and that the Company will continue to sell products to such customers as long as they are making payments on past due amount Sales Returns and Allowances Alpine has policies in place to ensure customer satisfaction with al goods. First, customers inspect goods upon delivery and sign for the goods with the delivery person, attesting to the condition of the goods upon delivery. Second, if a customer rejects a product, the delivery person calls Lisa Mercer, an Lisa arranges for substitute cupcakes to be delivered within 24 hours. Second, customers must return goods not rejected at receiving within 24 hours. Lisa creates a credit memorandum and credits the customer's AR account for the returned goods at sales price. Lindsay McKenna (AR manager) reviews all credit memorandums. Lisa Mercer is responsible for creating a quarterly estimate of sales returns and allowance. Because of the 24-hour return policy and the Alpine policy requiring customers to inspect goods upon delivery, th estimate for returns and allowances has always been immaterial Garcia and Foster Audit Workpaper AR.1.1: pg.3o