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. Audit Program Audit Year December 31, 20x2 WP Ref. Date No. A.1 Audit Procedure Include relevant financlal statement information in workpapers. A. Include Alpine Cupcakes, Inc. Financial Statements for years ended 12/31/20x2 and 12/31/20x1 B. Include the December 31, 20X2 Trial Balance. B.1 Obtain additional financial data A. Obtain the following financial statement data for 9/s/20x2 B.11-1.2 SDM the most recent quarters: Balance sheets for most recent quarter and 12/31/20x1 and Income Statements for most recent quarter and corresponding prior year's quarterly data B.2 Perform risk assessment procedures. A. Using Garcia & Foster methodology, set the Planning SDM 9/15/20x2 Materiality (PM), Tolerable Misstatement (TM), and Summary of Audit Difference (SAD) thresholds for the 20X2 Alpine Audit B. Obtain an understanding of the client and its SDM 9/s/20x2 B.2.1 environment, including internal controls. C. Determine the levels of inherent risk, control risk, SDM 9/15/20x2 B.2.1 and detection risk. B.3 Perform preliminary analytical procedures. A Use Alpine's 2nd quarter 20X2 data (if available) to SDM ojo1/2oX2 B.3.1-32 determine if there are any accounts with unusual fluctuations. The firm's stratesy identifies unusual fluctuations as a change in the account from prior year where the dollar change is greater than TM and percentage change is greater than 10%. i. Discuss with management any accounts with unusual fluctuations to determine the reasons for these changes. li. Identify any potential risk (misstatements) that could occur to cause these changes Garcia and Foster Audit Workpaper Audit Program: pg. 1 of 8 10 Alpine Cupcakes, Inc. Audit Program Audit Year December 31, 20x2 No, Audi,Procedure B.3 Perform preliminary analytical procedures (continued). B. Perform a ratio analysis on Q1 20X2 data that Date WP Ref. identifies any unusual changes in the company's financial statement account balances. The firm's strategy identifies unusual ratios as a 10% change in the ratio from prior year. Our firm methodology also identifies any ratios that are outside of the min and max industry range as a potential red flag. i. Document the analysis and explain the significant fluctuations. i. Identify any potential risk (misstatements) that could occur in these related accounts to cause the change or difference from prior year and/or industry norms. C1 Understanding internal controls over the cash processes. A. Interview appropriate personnel to understand the ARO 1//2ox3 cash receipts and disbursements process. B. Document the interview and responses in a cash receipts and disbursements narrative and flowchart Test internal controls over cash receipts and cash disbursements. A. Test the mailroom control listing by obtaining the AR C.2 C2.1 October and December monthly control listing logs from Diana Hayes. Determine if the following controls were performed: ARO 2/4/203 C22-2.3 i. Lindsay McKenna reconciles the total on the monthly control listing to the Cash Receipts Subledger and General Ledger (GL). ARO2/4/20x3C22-2.3 ii. Diana inputs the entries on a daily basis. Perform a surprise check to see if she has inputted all of the checks for the day ARO2/4/2003C22-23 ili. Miguel Lopez reviews and signs off on the monthly control listing by the 2nd day of the following month. iv. Copies of the mailroom control listing are forwarded to the cashier and Accounts Receivable (AR) departments v. A reconciliation is performed between the mailroom control listing and the daily deposit Garcia and Foster Audit Workpaper Audit Program: pg. 2 of 8 Alpine Cupcakes, Inc. Audit Program Audit Year December 31, 20x2 WP Ref. # Date Audit Procedure continued) C.Test internal controls over cash receipts and cash disbursements ( C21 B. Obtain 6 cash disbursements made during the month of December to determine if the following controls are operating effectiveh L The company employees follow the proper authorization limits where Miguel Lopez signs any checks under $5,000 and Alexis Madison co-signs (along with Miguel) any checks over $5,000. 2/4/203 C242.9 l. The company creates a voucher packet with the purchase order, vendor invoice, and the ARO receiving report. ARO C.24-2.9 ili. Miguel Lopez cancels supporting documents with a PAID stamp, the date of payment, and the signature of the person signing the check c, obtain the October and November cashoperating ARO 4203 CZ account reconciliations. Determine if the following controls were properly applied: 2/4/2013 c.210-2.11 i. The bank reconciliation is performed within 5 ARO 2/4/203 C2.10-2.11 ARO 2/4/203 C2.10-2.11 iv. Unreconcilable differences are investigated by ARO/4/20x3 C210-2.11 i. Lindsay Mckenna prepares the account reconciliation on a monthly basis. days of month end ili. The reconciliation is reviewed by Miguel Lopez within 10 days of month end. Lindsay McKenna in a timely manner. C.3 Perform cash testing-bank confirmations. A. Identify the material cash balances held in bank ARO 1/18/20x3 accounts and provide a memo on the confirmation auditing procedures. B. Have the client complete cash standard bank C.3.2 C.3.1 C3.1 confirmations for significant checking accounts. Validate the bank information. C. Create and document the cash confirmation process RO 1/18/20x3 in a cash confirmation control listing D. Send out confirmations directly to the bank(s). The ARmaa client should not send the confirmation. Document your procedures and actions in the confirmation memo. E. Once the confirmations are received directly from ARO 1/18/20x3 C3.3 the bank, document and set aside for use in testing the client's bank reconciliation. Garcia and Foster Audit Workpaper Audit Program: pg. 3 of 8 12 Alpine Cupcakes, Inc. Audit Year December 31, 20X2 No. Audit Procedure C4 Perform cash testing-bank confirmations. A. Obtain the December bank reconciliations for wp Ref. # significant cash/bank accounts. B. Perform the following procedures to complete substantive testing on the December bank reconciliation: i. Test the reconciliation for clerical accuracy il. Tle the reconciliation to the Trial Balance (TB): RO//2x3 //20x3 CA1-42 C42419 Tie the balance per the GL on the bank reconciliation to the TB . Tie the balance per the bank to the cash bank v. Tie the outstanding checks to the outstanding v. Test the deposits in transit: Trace the deposits mmo c4u confirmation. R /2x3 C4243 check listing R2/8/200 C4.5, C4.7 in transit to the January cutoff bank statement, December cash receipts journal, December mailroom control listing, daily deposit slips, and validated bank receipts. C45 ARO2/8/203 1. Obtain the January cutoff bank statement directly from bank 2/8/203 C4.2, C44 vi. Test other items: Tie any bank fees, interest Ro earned, or other reconciling items to the December bank statement. C. Test the outstanding checks on the December bank reconciliation as follows: L. Trace the total of outstanding checks from the AR2/8/203C42-43 reconciliation to the outstanding checks listing. i. Trace the outstanding checks (date, amount,RO2//203C4243, C4.5 check number) from the outstanding check listing to clearance on the January cutoff bank statement. ll. Reconcile the outstanding check register from RO2//203 CA34 C4.6 C4.8 December by beginning with the outstanding checks total for November, adding checks written during December from the client's check log (operating account) records, and subtracting checks clearing on the bank statement in December iv. Investigate any checks that still are outstanding from the November outstanding check register. C4.1 D. Note any unusual items Audit Program: pg. 4 of 8 Garcia and Foster Audit Workpaper 13 Alpine Cupcakes, Inc. Audit Program Audit Year December 31, 20x2 WP Ref. # Date No. C.5 Audit Procedure C.S.1 Inquiry of management. A. Discuss with management any related party ARO2/9/2003 transactions that would affect cash transactions and any restrictions on cash. B. Determine if any of the above items require Understanding internal controls over the sales, accounts receivable, and allowance processes. A. Interview appropriate personnel to understand the sniz AR.1 76s oieons RL sales, accounts receivable, and allowance B. Document the interview and responses in a narrative and a flowchart. C. Perform a walkthrough of the process and document your understanding of the internal controls AR.2 Test internal controls over the accounts receivable and sales processes. A. Select a random sample of recorded sales from the 7Es 310AR21-2 sales journal to test internal controls over accounts receivable and sales processes. Use attribute sampling to calculate the sample size. B. For each item in the sample, obtain the customerTS ales/aoxsAR. 2.2-24 purchase order, sales order, shipping documents, and copy of the sales invoice. Reperform the client's internal control procedures by comparing the quantity, price, and dates on the customer purchase orders, approved sales orders, shipping documents, and sales invoices. C. Follow up on any exceptions or deviations noted to 7S S R22-2.4 determine if they are internal control weaknesses and whether the client has remedied them. D. Use attribute sampling procedures to evaluate the 8S al2saSR.2.1 results and conclude whether the internal controls over accounts receivable and sales are operating effectively. Garcia and Foster Audit Workpaper Audit Program: pg. 5 of 8 14 Audit Program Audit Year December 31, 20x2 AR.3 Audit Procedure Perform substantive analytical procedures. A" Create an analysis comparing prior year sales, AR, WP Ref. 7Eson,namsARS., and allowance balances to current year. Calculate both the $ change and % change from prior year Analyze sales by product and perform additional ratio analysis. B. Reconcile the amounts on the lead sheet to the Trial ES O BOLS R.S.1.. .Identify any fluctuations greater than the tolerable 7Es ravens AU,-54 D. Discuss significant fluctuations with the client and 7S 010805R.13.4 Balance. misstatement (TM) threshold and greater than a 10% change. substantiate client explanations. AR4 Test the detailed listing of the aged accounts receivable balances (aged by customer name) A Trace the totals from the AR Aging Schedule to the 7Es elTeleors ARie AR Lead Sheet. B. Randomly select 2 account balances in each aging category and agree to supporting documentation to verify the balance is included in the proper aging category days for collectability Send positive accounts receivable confirmation letters. A. Select the 5 largest AR account balances from the AR.5 TES celon aonsS AR Aging Schedule. calARS.I Cell 1023RS B. Set up a confirmation worksheet to keep track of 6S AR.S. the dates confirmations are sent, resent, and received. Document findings and any issues in the worksheet. 5.2 C. Have client prepare and sign confirmations. D. Maintain control of the confirmation process. The Selolas R. audit team should mail the confirmations and receive them directly i. Include prepaid self-addressed envelopes with 7ESalolasR.s. the confirmations so that we receive them at our audit offices. Garcia and Foster Audit Workpaper Audit Program: pg.6 of 8 15 Alpine Cupcakes, Inc. Audit Program Audit Year December 31, 20x2 WP Ref. Audit Procedure AR.S Send positive accounts recelvable E. Reconcile the returned confirmation to the AR confirmation letters (continued) account balances on the AR Aging Schedule l. Investigate any differences between the document any needed adjustments l. For confirmations not received, perform additional testing, including reviewing subsequent payments and examining supporting documentation (shipping documents, sales invoices, and customers purchase orders). F. Review confirmations for any indication of lack of78s ability to pay balances (tie to allowance procedures) or dispute over amounts that could lead to uncollectible balances. AR.6 Perform year-end sales cutoff tests. A. Select 2 customers and examine their transactions in ES es)0s RI6.7 the 5 days before year end and the 5 days after year end. B. Vouch the transactions to the proper shipping reports 75S cals 20ms AR61-6.7 and sales invoices. Verify that the transactions were recorded in the proper period. C. Identify if any unusual changes to shipping terms occurred just before year end AR.7 Evaluate the allowance for uncollectible accounts. A. Evaluate the client's policy for setting an estimate on 7ES c R7 collecting overdue accounts. Investigate any changes from prior year by reviewing subsequent payments i. Compare both the dollar amount and estimate of ES SAR1I B. Evaluate the collectability of significant AR balances 7s alsI C. Develop our own estimate and compare to the client's. uncollectability for each aging category to prior year's balances and estimates of uncollectability percentages. ll. Select and review the 5 largest customer accounts. Review for late payments, credit ratings and approval, and any unusual transactions through the year-especially at year Garcia and Foster Audit Workpaper Audit Program: pg.7 of 8 16 Alpine Cupcakes, Inc. Audit Program Audit Year December 31, 20X2 No Audit Procedure WP Ref. # AR.7 Evaluate the allowance for uncollectible accounts (continued) By Date D. Discuss with credit manager any large accounts that AR7.1 are greater than 90 days past due to understand the Company's actions for collection and the probability of receiving payment. 78S 2025 AR. 7.1 7Es E. Perform ratio analysis: Allowance balance per aging category compared to prior year; number of days sales in AR compared to prior year; allowance balance divided by total accounts receivable compared to prior year ratio; and allowance balance divided by net credit sales compared to prior year. 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. Audit Program Audit Year December 31, 20x2 WP Ref. Date No. A.1 Audit Procedure Include relevant financlal statement information in workpapers. A. Include Alpine Cupcakes, Inc. Financial Statements for years ended 12/31/20x2 and 12/31/20x1 B. Include the December 31, 20X2 Trial Balance. B.1 Obtain additional financial data A. Obtain the following financial statement data for 9/s/20x2 B.11-1.2 SDM the most recent quarters: Balance sheets for most recent quarter and 12/31/20x1 and Income Statements for most recent quarter and corresponding prior year's quarterly data B.2 Perform risk assessment procedures. A. Using Garcia & Foster methodology, set the Planning SDM 9/15/20x2 Materiality (PM), Tolerable Misstatement (TM), and Summary of Audit Difference (SAD) thresholds for the 20X2 Alpine Audit B. Obtain an understanding of the client and its SDM 9/s/20x2 B.2.1 environment, including internal controls. C. Determine the levels of inherent risk, control risk, SDM 9/15/20x2 B.2.1 and detection risk. B.3 Perform preliminary analytical procedures. A Use Alpine's 2nd quarter 20X2 data (if available) to SDM ojo1/2oX2 B.3.1-32 determine if there are any accounts with unusual fluctuations. The firm's stratesy identifies unusual fluctuations as a change in the account from prior year where the dollar change is greater than TM and percentage change is greater than 10%. i. Discuss with management any accounts with unusual fluctuations to determine the reasons for these changes. li. Identify any potential risk (misstatements) that could occur to cause these changes Garcia and Foster Audit Workpaper Audit Program: pg. 1 of 8 10 Alpine Cupcakes, Inc. Audit Program Audit Year December 31, 20x2 No, Audi,Procedure B.3 Perform preliminary analytical procedures (continued). B. Perform a ratio analysis on Q1 20X2 data that Date WP Ref. identifies any unusual changes in the company's financial statement account balances. The firm's strategy identifies unusual ratios as a 10% change in the ratio from prior year. Our firm methodology also identifies any ratios that are outside of the min and max industry range as a potential red flag. i. Document the analysis and explain the significant fluctuations. i. Identify any potential risk (misstatements) that could occur in these related accounts to cause the change or difference from prior year and/or industry norms. C1 Understanding internal controls over the cash processes. A. Interview appropriate personnel to understand the ARO 1//2ox3 cash receipts and disbursements process. B. Document the interview and responses in a cash receipts and disbursements narrative and flowchart Test internal controls over cash receipts and cash disbursements. A. Test the mailroom control listing by obtaining the AR C.2 C2.1 October and December monthly control listing logs from Diana Hayes. Determine if the following controls were performed: ARO 2/4/203 C22-2.3 i. Lindsay McKenna reconciles the total on the monthly control listing to the Cash Receipts Subledger and General Ledger (GL). ARO2/4/20x3C22-2.3 ii. Diana inputs the entries on a daily basis. Perform a surprise check to see if she has inputted all of the checks for the day ARO2/4/2003C22-23 ili. Miguel Lopez reviews and signs off on the monthly control listing by the 2nd day of the following month. iv. Copies of the mailroom control listing are forwarded to the cashier and Accounts Receivable (AR) departments v. A reconciliation is performed between the mailroom control listing and the daily deposit Garcia and Foster Audit Workpaper Audit Program: pg. 2 of 8 Alpine Cupcakes, Inc. Audit Program Audit Year December 31, 20x2 WP Ref. # Date Audit Procedure continued) C.Test internal controls over cash receipts and cash disbursements ( C21 B. Obtain 6 cash disbursements made during the month of December to determine if the following controls are operating effectiveh L The company employees follow the proper authorization limits where Miguel Lopez signs any checks under $5,000 and Alexis Madison co-signs (along with Miguel) any checks over $5,000. 2/4/203 C242.9 l. The company creates a voucher packet with the purchase order, vendor invoice, and the ARO receiving report. ARO C.24-2.9 ili. Miguel Lopez cancels supporting documents with a PAID stamp, the date of payment, and the signature of the person signing the check c, obtain the October and November cashoperating ARO 4203 CZ account reconciliations. Determine if the following controls were properly applied: 2/4/2013 c.210-2.11 i. The bank reconciliation is performed within 5 ARO 2/4/203 C2.10-2.11 ARO 2/4/203 C2.10-2.11 iv. Unreconcilable differences are investigated by ARO/4/20x3 C210-2.11 i. Lindsay Mckenna prepares the account reconciliation on a monthly basis. days of month end ili. The reconciliation is reviewed by Miguel Lopez within 10 days of month end. Lindsay McKenna in a timely manner. C.3 Perform cash testing-bank confirmations. A. Identify the material cash balances held in bank ARO 1/18/20x3 accounts and provide a memo on the confirmation auditing procedures. B. Have the client complete cash standard bank C.3.2 C.3.1 C3.1 confirmations for significant checking accounts. Validate the bank information. C. Create and document the cash confirmation process RO 1/18/20x3 in a cash confirmation control listing D. Send out confirmations directly to the bank(s). The ARmaa client should not send the confirmation. Document your procedures and actions in the confirmation memo. E. Once the confirmations are received directly from ARO 1/18/20x3 C3.3 the bank, document and set aside for use in testing the client's bank reconciliation. Garcia and Foster Audit Workpaper Audit Program: pg. 3 of 8 12 Alpine Cupcakes, Inc. Audit Year December 31, 20X2 No. Audit Procedure C4 Perform cash testing-bank confirmations. A. Obtain the December bank reconciliations for wp Ref. # significant cash/bank accounts. B. Perform the following procedures to complete substantive testing on the December bank reconciliation: i. Test the reconciliation for clerical accuracy il. Tle the reconciliation to the Trial Balance (TB): RO//2x3 //20x3 CA1-42 C42419 Tie the balance per the GL on the bank reconciliation to the TB . Tie the balance per the bank to the cash bank v. Tie the outstanding checks to the outstanding v. Test the deposits in transit: Trace the deposits mmo c4u confirmation. R /2x3 C4243 check listing R2/8/200 C4.5, C4.7 in transit to the January cutoff bank statement, December cash receipts journal, December mailroom control listing, daily deposit slips, and validated bank receipts. C45 ARO2/8/203 1. Obtain the January cutoff bank statement directly from bank 2/8/203 C4.2, C44 vi. Test other items: Tie any bank fees, interest Ro earned, or other reconciling items to the December bank statement. C. Test the outstanding checks on the December bank reconciliation as follows: L. Trace the total of outstanding checks from the AR2/8/203C42-43 reconciliation to the outstanding checks listing. i. Trace the outstanding checks (date, amount,RO2//203C4243, C4.5 check number) from the outstanding check listing to clearance on the January cutoff bank statement. ll. Reconcile the outstanding check register from RO2//203 CA34 C4.6 C4.8 December by beginning with the outstanding checks total for November, adding checks written during December from the client's check log (operating account) records, and subtracting checks clearing on the bank statement in December iv. Investigate any checks that still are outstanding from the November outstanding check register. C4.1 D. Note any unusual items Audit Program: pg. 4 of 8 Garcia and Foster Audit Workpaper 13 Alpine Cupcakes, Inc. Audit Program Audit Year December 31, 20x2 WP Ref. # Date No. C.5 Audit Procedure C.S.1 Inquiry of management. A. Discuss with management any related party ARO2/9/2003 transactions that would affect cash transactions and any restrictions on cash. B. Determine if any of the above items require Understanding internal controls over the sales, accounts receivable, and allowance processes. A. Interview appropriate personnel to understand the sniz AR.1 76s oieons RL sales, accounts receivable, and allowance B. Document the interview and responses in a narrative and a flowchart. C. Perform a walkthrough of the process and document your understanding of the internal controls AR.2 Test internal controls over the accounts receivable and sales processes. A. Select a random sample of recorded sales from the 7Es 310AR21-2 sales journal to test internal controls over accounts receivable and sales processes. Use attribute sampling to calculate the sample size. B. For each item in the sample, obtain the customerTS ales/aoxsAR. 2.2-24 purchase order, sales order, shipping documents, and copy of the sales invoice. Reperform the client's internal control procedures by comparing the quantity, price, and dates on the customer purchase orders, approved sales orders, shipping documents, and sales invoices. C. Follow up on any exceptions or deviations noted to 7S S R22-2.4 determine if they are internal control weaknesses and whether the client has remedied them. D. Use attribute sampling procedures to evaluate the 8S al2saSR.2.1 results and conclude whether the internal controls over accounts receivable and sales are operating effectively. Garcia and Foster Audit Workpaper Audit Program: pg. 5 of 8 14 Audit Program Audit Year December 31, 20x2 AR.3 Audit Procedure Perform substantive analytical procedures. A" Create an analysis comparing prior year sales, AR, WP Ref. 7Eson,namsARS., and allowance balances to current year. Calculate both the $ change and % change from prior year Analyze sales by product and perform additional ratio analysis. B. Reconcile the amounts on the lead sheet to the Trial ES O BOLS R.S.1.. .Identify any fluctuations greater than the tolerable 7Es ravens AU,-54 D. Discuss significant fluctuations with the client and 7S 010805R.13.4 Balance. misstatement (TM) threshold and greater than a 10% change. substantiate client explanations. AR4 Test the detailed listing of the aged accounts receivable balances (aged by customer name) A Trace the totals from the AR Aging Schedule to the 7Es elTeleors ARie AR Lead Sheet. B. Randomly select 2 account balances in each aging category and agree to supporting documentation to verify the balance is included in the proper aging category days for collectability Send positive accounts receivable confirmation letters. A. Select the 5 largest AR account balances from the AR.5 TES celon aonsS AR Aging Schedule. calARS.I Cell 1023RS B. Set up a confirmation worksheet to keep track of 6S AR.S. the dates confirmations are sent, resent, and received. Document findings and any issues in the worksheet. 5.2 C. Have client prepare and sign confirmations. D. Maintain control of the confirmation process. The Selolas R. audit team should mail the confirmations and receive them directly i. Include prepaid self-addressed envelopes with 7ESalolasR.s. the confirmations so that we receive them at our audit offices. Garcia and Foster Audit Workpaper Audit Program: pg.6 of 8 15 Alpine Cupcakes, Inc. Audit Program Audit Year December 31, 20x2 WP Ref. Audit Procedure AR.S Send positive accounts recelvable E. Reconcile the returned confirmation to the AR confirmation letters (continued) account balances on the AR Aging Schedule l. Investigate any differences between the document any needed adjustments l. For confirmations not received, perform additional testing, including reviewing subsequent payments and examining supporting documentation (shipping documents, sales invoices, and customers purchase orders). F. Review confirmations for any indication of lack of78s ability to pay balances (tie to allowance procedures) or dispute over amounts that could lead to uncollectible balances. AR.6 Perform year-end sales cutoff tests. A. Select 2 customers and examine their transactions in ES es)0s RI6.7 the 5 days before year end and the 5 days after year end. B. Vouch the transactions to the proper shipping reports 75S cals 20ms AR61-6.7 and sales invoices. Verify that the transactions were recorded in the proper period. C. Identify if any unusual changes to shipping terms occurred just before year end AR.7 Evaluate the allowance for uncollectible accounts. A. Evaluate the client's policy for setting an estimate on 7ES c R7 collecting overdue accounts. Investigate any changes from prior year by reviewing subsequent payments i. Compare both the dollar amount and estimate of ES SAR1I B. Evaluate the collectability of significant AR balances 7s alsI C. Develop our own estimate and compare to the client's. uncollectability for each aging category to prior year's balances and estimates of uncollectability percentages. ll. Select and review the 5 largest customer accounts. Review for late payments, credit ratings and approval, and any unusual transactions through the year-especially at year Garcia and Foster Audit Workpaper Audit Program: pg.7 of 8 16 Alpine Cupcakes, Inc. Audit Program Audit Year December 31, 20X2 No Audit Procedure WP Ref. # AR.7 Evaluate the allowance for uncollectible accounts (continued) By Date D. Discuss with credit manager any large accounts that AR7.1 are greater than 90 days past due to understand the Company's actions for collection and the probability of receiving payment. 78S 2025 AR. 7.1 7Es E. Perform ratio analysis: Allowance balance per aging category compared to prior year; number of days sales in AR compared to prior year; allowance balance divided by total accounts receivable compared to prior year ratio; and allowance balance divided by net credit sales compared to prior year