AUDIT ENGAGEMENT BACKGROUND SSD is required to have an audit of its nancial statements to fulll requirements of loan agreements with nancial institutions. This audit is to be completed in accordance with AICPA professional standards for the audit of nonpublic companies. Your audit rm is in the process of completing the audit for the scal 2021 nancial statements in accordance with these professional standards. The audit senior for this engagement is Jorge Hernandez. The two audit staff assigned to this engagement are Joy Avery and you. The two of you are responsible for performing the tests of details of balances and analytical tests outlined in the expenditure cycle audit program (referenced in the top right-hand corner as E 2). The general ledger accounts related to purchasing and cash disbursement activities at SSD include the following: - Inventory Purchases - Warehouse Expenses - Purchase Discounts . Selling Expenses - Purchase Returns and Allowances - Prepaid Assets . Freight |n . Accounts Payable - Administrative Expenses Joy Avery has already performed audit procedures 1 and 2 listed on audit schedule E 2. Her work is documented on audit schedules E 2, E 10, E 50, and E 51. Additionally, Joy has selected the audit sample for audit procedure 3 as noted on audit schedule E 52. REQUIRED [1] Complete audit procedure 3a listed on audit program E 2. The supporting documents to be examined for this audit procedure are vouchers, vendor invoices. receiving reports. and purchase orders. Assume you have already tested 35 of the selected sample items, observing no misstatements. The documents and records for the remaining ve sample items are provided behind the audit schedules (pp. 80-85}. SSD's policies only require the generation of receiving reports for purchases of inventory and xed assets. Additionally, purchase orders are not required to be generated for recurring services such as utilities and cleaning. The results from performing audit procedure 3a should be documented in audit schedule E 53. Document completion of audit procedure 3a in the audit program E 2. [2] Document your adjusting entries for any observed misstatements that you propose on schedule E 11. Then update the accounts payable lead schedule on audit schedule E 1'0. Assume that there was no systematic pattern or intent to commit a fraud based on a review and discussion with client personnel concerning observed misstatements, if any. T2 Reference: E 2 Prepared by: JA Date: 2/28/2022 Reviewed by: Southeast Shoe Distributor Expenditure Cycle Audit Program for Year End Analytical Procedures and Tests of Balances For the Year Ended December 31, 2021 Audit Procedures Initial Date Ref. 1. Obtain a lead schedule for Accounts Payable and perform the JA 2/14/22 E 10 ollowing: a. Agree prior year balance to prior year audit schedule. JA 2/14/22 E 10 Agree current year balance to the general ledger. JA 2/14/22 E 10 2. Obtain a printout of the accounts payable vendor ledgers as of the JA 2/17/22 N/A end of the year and perform the following: a. Foot the year-end vendor ledgers and agree it to the lead JA 2/17/22 E 10 schedule. b. Scan the year-end vendor ledgers for large, unusual, related-party or debit balances and perform follow-up JA 2/17/22 E 50 procedures for each one identified. c. Obtain the last five receiving reports issued before year-end and determine if they were properly included in the year- JA 2/18/22 E 51 end vendor ledgers. d. Obtain the first five receiving reports issued after year-end and determine if they were properly excluded from the year- JA 2/28/22 E 51 end vendor ledgers 3. Select a sample of checks issued after year-end and perform the JA 2/28/22 E 52 following: a. Examine the voucher package and determine if the related payable was properly included or excluded from the year- JA E 53 end vendor ledgers 73Southeast Shoe Distributor Accounts Payable - Lead Schedule For the Year Ended December 31, 2021 Reference: E 10 Prepared by: M Date: 2/14/2022 Reviewed by: Account Accounts Payable Audited Balance 12l31l2020 $453, 370 'V' Unaudited Balance 12l31l2021 $742, 704 /, Gt Adjustments Adjusted Balance Debit Credit 12l31l2021 Tickma rk Legend - Agreed to prior year audit schedule without exception (audit step 13). Gt. - Agreed to 12/31/2021 general ledger without exception (audit step 1b). 1' - Agreed to the footed balance of the 12/31/2021 accounts payable vendor ledgers without exception (audit step 2a). 74 Reference: Prepared by: Date: Reviewed by: E11 Southeast Shoe Distributor Expenditure Cycle - Proposed Adjusting Entries Schedule For the Year Ended December 31, 2021 Account Debit Credit Explanation: Explanation: Explanation: Explanation 75 Reference: E 50 Prepared by: JA Date: 2/17/2022 Reviewed by: Southeast Shoe Distributor Unusual Balances - Expenditure Cycle Accounts Payable For the Year Ended December 31, 2021 Vendor Balance No large, unusual, related-party or debit balances were noted. See conclusions below. Follow-up procedures performed: No large, unusual, related-party or debit accounts payable balances were identified as a result of scanning the year-end vendor ledgers (audit step 2b). Thus, no follow-up procedures are needed. 76Reference: E 51 Prepared by: JA Date: 2/18/2022 Reviewed by: Southeast Shoe Distributor Nonsampling Tests of Balances - Expenditure Cycle Accounts Payable For the Year Ended December 31, 2021 Procedure The last receiving report issued before close of business on December 31, 2021 was 2810. The vouchers, vendor invoices, and purchase orders supporting the last five receiving reports issued before year-end and first five receiving reports issued after year-end were examined and traced to proper inclusions/exclusion in/from the December 31, 2021 vendor ledgers (audit steps 2c and d). Exceptions/Misstatements: No misstatements were noted. Conclusion: The results of audit steps 2c and d support that there were no material cutoff misstatements for purchase transactions occurring just before and after year-end. 77Reference: E 52 Prepared by: IA Date: 2/28/2022 Reviewed by: Southeast Shoe Distributor Nonstatistical Tests of Balances Sampling Plan - Expenditure Cycle For the Year Ended December 31, 2021 Beg. End. Doc. # or Doc. # or Sample Sampling Frame Page # Page # Size Checks issued subsequent to year end 7,431 7,584 40 Sample Selection Method: The sample of checks issued subsequent to year-end were selected using the haphazard selection method. Sample: Check Number Sample Sample Sample Sample Sample Sample Sample Sample Item Ref. Item Ref Item Ref. Item Ref. 1 7,434 16 7,488 31 7,531 7,441 17 7.496 N 32 7.536 3 7,442 18 7,498 33 7,541 7,444 19 7,501 34 7,546 7,452 20 7,502 35 7,552 7,453 21 7,503 36 7,553 7,456 22 7,505 37 7.565 CO V 7,459 23 7,506 38 7,573 9 7,466 24 7,514 39 7,579 10 7,467 25 7,515 40 7,581 11 7,468 26 7,518 12 7,473 27 7,520 13 7,467 28 7,521 14 7,479 29 7,523 15 7,486 30 7,527 78Reference: E 53 Prepared by: Date: Reviewed by: Southeast Shoe Distributor Nonstatistical Tests of Balance Evaluation - Expenditure Cycle Accounts Payable For the Year Ended December 31, 2021 Recorded Audited Misstatement Misstatements: Amount Amount Amount Total Sample Misstatement Projected Misstatement: Total Sample Misstatement Dollar Value of Sample $184,583.10 Percentage Sample Dollar Misstatement 1 x 1 + Dollar Value of Population per Journal $742,704.11 Projected Population Dollar Misstatement Allowance for Sampling Risk Tolerable Misstatement $40,000.00 Projected Population Dollar Misstatement Recorded Adjustments 11 + 1 Allowance for Sampling Risk Conclusions: 79Southeast Shoe Distributor, Inc. Vendor Ledgers for Audit Procedure 3a' For the Period from December 1, 2021 to December 31, 2021 Debit Credit Vendor Date Trans. Ref. Type Amount Amount Balance Brown Group, Inc. 2/01/21 Balance Fwd 2,366.94 12/10/21 7357 CDJ 12,366.94 0.00 12/16/21 47314 PJ 1,952.64 1,952.64 12/26/21 49524 PJ 25,883.00 27,835.64 Georgia Natural 12/01/21 Balance Fwd 446.10 Gas Service 12/11/21 7358 CDJ 446.10 0.00 12/23/21 359052-002-08 PJ 553.86 553.86 Metro Cleaning 12/01/21 Balance Fwd 0.00 12/03/21 18777 PJ 350.00 350.00 12/26/21 7415 CDJ 350.00 0.00 Vargo Rack & Shelving 12/01/21 Balance Fwd 825.74 12/26/21 7417 CDJ 825.74 0.00 12/31/21 2077 - 45 PJ 771.47 771.47 Weyco Group, Inc. 12/01/21 Balance Fwd 9,649.56 12/05/21 24715 PJ 7,111.88 16,761.4 Abstracted from the printout of Vendor Ledgers using exact format of the printout (Note: Trans. Ref. refers to the corresponding check number or vendor invoice number and Type refers to the corresponding Cash Disbursement Journal - CDJ or Purchase Journal - PJ). 80Documents for Audit Procedure 3a Invoice Brown Group, Inc. # 47314 Voucher 300 Maryland Avenue St. Louis, MO 63105 Check #: 7453 Approval: JS 314-854-4000 (phone), 314-854-4274 (fax) Date: 01/09/22 Voucher #: 9049 Date: 12/10/2021 Terms: Net 30 Payee: Brown Group, Inc. Account #: 12000 PO #: 3336 Shipped: United Parcel Service FOB Shipping Point Amount: $1,952.64 Paid Bill To Ship To Description: Purchase of women's shoes Southeast Shoe Distributor, Inc Southeast Shoe Distributor, Inc 1102 Memorial Ave. 1102 Memorial Ave. Atlanta, GA 30303 Atlanta, GA 30303 Phone: (404)555-5555 Item # Description Size Quantity Unit Price Amount 45623 Naturalizer Royal Pumps Bone 6.5 M 36 16.7 $604.44 45623 Naturalizer Royal Pumps Bone 7.0 M 36 16.79 604.44 45623 Naturalizer Royal Pumps Bone 7.5 M 36 16.79 604.44 Total Amount: $1,813.32 Tax Paid Shipping 139.32 Total Invoice: $1,952.64 Message Receiving Report Bill to Purchase Order Southeast Shoe Distributor, Inc. PO #: 3336 Southeast Shoe Distributor, Inc. Date Received 12/1 1/21 1102 Memorial Ave Date: Date Required: 12/15/21 1102 Memorial Avenue Receiving Report #: 2760 Atlanta, GA 30303 12/05/21 Atlanta, GA 30303 Terms: Net 30 Phone: (404) 555-5555 Shipped: United Parcel Service Received From Purchase Order # Buyer: Mary West Brown Group, Inc. 3336 Vendor. Ship To Brown Group, Inc. Southeast Shoe Distributor, Inc. 8300 Maryland Avenue 1102 Memorial Avenue Freight Carrier Received by St. Louis, MO 63105 Atlanta, GA 30303 United Parcel Service Sue Ravens Phone: (314) 854-4000 Quantity Item # Size Description Item # Description Size Quantity Unit Price Amount 45623 Naturalizer Royal Pumps Bone 6.5 M 36 16.79 $604 44 36 45623 6.5 M Naturalizer royal pumps bone 45623 ralizer Royal Pu Pumps Bon 7.0m 16.79 604.44 36 45623 7.0 M 45623 Naturalizer Royal Pumps Bone 7.5 m 16 70 ;04.44 36 45623 7.5 M Total Amount $1.813.32 Tax Paid Total Invoice: $1.813.32 Message Authorization Name: Bruce Penny Date 12/05/21 Title Purchasing Supervisor Paid Signature: Bruce Penny Condition: Excellent 81Documents for Audit Procedure 3a (continued) Voucher Check #: 7473 Approval: JS Date 01/15/22 Voucher #: 9081 Payee Georgia Natural Gas Service. Account # 75000 Amount: $553.86 Paid Description: Monthly gas bill Service Southeast Shoe Distributor Inc. Your Account Number: Rate - Type of Service: Billing Date: For: 1102 Memorial Avenue 359052-002-08 Commercial 12/22/21 Atlanta, Georgia 3030 Gas Previous Balance 446.10 KT Payment - Thank You (446.10) Remaining Balance 0.00 Paid Current Bill 553.86 Total 553.8 Current Bill Past Due After Total Amount Due January 15, 2022 553.86 HOW YOUR CURRENT GAS CHARGES ARE CALCULATED Meter Type of Meter Readings CCF BTU Therms Number Service Period Days Readings Current Past Used Factor Used 159756 11/20/21 - 12/19/21 32 Actual 15297 15985 688 1.049 722 Total Therms Energy Charge WNA Facilities Taxable Sales Tax Current Gas Billed Therms X Rate (.73928) | Therms X Factor (-.00558) Charge Amount (3.00%) Charge 722 533.76 4.03 8.00 537.73 16.13 553.86 SEE THE BACK OF THIS BILL FOR ADDITIONAL INFORMATION GEORGIA NATURAL GAS SERVICES 5605 GLENRIDGE DR NE, ATLANTA, GA 30342 (404) 257-4000 82Documents for Audit Procedure 3a (continued) Voucher Invoice Vargo Rack & Shelving # 2077-45 Check #: 7523 Approval: JS 6400 Hillandale Drive Lithonia, GA 30058 Date: 01/27/22 Voucher #: 9113 (404) 482-4444 Payee: Vargo Rack & Shelving Account #: 15000 Date: 12/29/21 Terms: Net 30 Customer Order: 3348 Shipped: Vargo Delivery Amount: $771.47 Paid FOB Shipping Point Description: Purchase of Storage Shelving Bill To Ship To Southeast Shoe Distributor, Inc Southeast Shoe Distributor, Inc 1102 Memorial Ave. 1102 Memorial Ave. Atlanta, GA 30303 Atlanta, GA 30303 Receiving Report Southeast Shoe Distributor, Inc. Date Received 01/02/22 Phone: (404)555-5555 1102 Memorial Avenue Receiving Report #: 2817 Atlanta, GA 30303 Item # Description Quantity Unit Price Amount H5118 Penco Erectomatic Shelving, Beige 6 $121.30 $727.80 Received From Purchase Order # Vargo Rack & Shelving 3348 Freight Carrier Received by Vargo Truck Sue Ravens Total Amount: $727.80 Rate: 6.0% Tax 43.67 Paid Shipping Quantity Item # Size Description Total Invoice $771.47 H5118 Penco Erectomatic Shelving Bill to Purchase Order Southeast Shoe Distributor, Inc. PO #: 3348 1102 Memorial Ave. Atlanta, GA 3030 Date: 12/26/2 Date Required: 12/29/21 Terms: Net 30 Phone: (404) 555-5555 Shipped: Vargo Truck Buyer: Mary Talley Paid Vendor. ship To Vargo Rack & Shelving Southeast Shoe Distributor, Inc. 6400 Hillandale Drive 1102 Memorial Avenue Lithonia, GA 30058 Atlanta, GA 30303 Condition: Phone: (404) 482-4444 Excellent Item # Description Size Quantity Unit Price Amount H51118 Beige Penco Erectomatic Shelving $121.30 $727.80 Total Amount 727.80 Paid Tax 43.67 Total Invoice: $771.47 Message Authorization Name: Bruce Penny Date: Title: Purchasing Supervisor ignature: Bruce Penny 83Documents for Audit Procedure 3a (continued) Voucher Invoice Weyco Group, Inc # 26171 Check #: 7523 Approval: 234 East Reservoir Avenue, PO Box 1188 Milwaukee, WI 53201 Date 02/23/22 Voucher #: 9138 Phone: (312) 458-7474, Fax: (312) 458-250 Payee: Weyco Group, Inc. Account #: 12000 Date: 01/09/22 Terms: Net 45 PO #: 3349 Shipped Transit Freight Company FOB: Amount: $19,656.00 Shipping Point Paid Bill To Ship To Description: Purchase of men's shoes Southeast Shoe Distributor, Inc Southeast Shoe Distributor, Inc 1102 Memorial Ave. 1102 Memorial Ave Atlanta, GA 3030 Atlanta, GA 30303 Phone: (404)555-5555 Receiving Report Item # Description Size Quantity Unit Price Amount Southeast Shoe Distributor, Inc. Date Received 01/09/22 1617 Stacy Adams Low Top Tie Black 9.0 D $31.50 $787.50 102 Memorial Avenue Receiving Report #: 2824 1617 Stacy Adams Low Top Tie Black 9.5 D 31.50 1.575.00 1617 Stacy Adams Low Top Tie Black 10.0 D 31.50 Atlanta, GA 30303 1.575.00 1617 ams Low Top Tie Black 10.5 0 31.50 1,575.00 Received From Purchase Order # 1617 tacy Adams Low Top Tie Black 11.0 0 31.50 1.575.00 1617 Adams Low Top Tie Black 11.5 0 31.50 787.50 Weyco Group, Inc. 3349 1617 icy Adams Low Top Tie Black 12.0 D 31.50 787.50 1617 Stacy Adams Low Top Tie Black 13.0 D 31.50 787.50 1618 stacy Adams Low Top Tie Brown 90 D 31.50 Freight Carrier Received by 787-50 1618 Stacy Adams Low Top Tie Brown 9.5 D 31 50 1,575.00 Sue Ravens ams Low Top Tie Brow 10.0 D Transit Freight Company 1618 31.50 1,575.00 1618 Stacy Adams Low Top Tie Brown 10.5 0 31.50 1,575.00 1618 stacy Adams Low Top Tie Brown 11.0 0 31.50 1.575.00 Quantity Item # Size Description 1618 Stacy Adams Low Top Tie Brown 11.5 0 31.50 787-50 31.50 787.50 25 1618 9.0 0 Stacy Adams low top the brown 1618 Stacy Adams Low Top Tie Brown 12.0 D 50 1618 9.5 D 1618 Stacy Adams Low Top Tie Brown 13.0 D 31 50 787.50 50 1618 10.0 D Total Amount: $18,900.00 50 161 10.5 D Paid Rate: 6.0% Tax: 50 1618 11.00 Shipping: 756.00 161 11.5 D Total Invoice: $19,656.00 25 161 120 0 25 161 13.0 D 1617 9.00 Stacy Adams low top tie black 50 1617 9.5 D 50 Bill to Purchase Order 1617 10.0 D 50 10.5 0 Southeast Shoe Distributor, Inc. 161 PO #: 3349 1102 Memorial Ave. 50 161 11.0 0 Atlanta, GA 30303 Date: 12/26/21 Date Required: 01/30/22 25 1617 11.5 D Paid Terms: Net 45 25 161 120 D Phone: (404) 555-5555 Shipp Transit Freight Company 25 1617 13.0 D Buyer: Doug Scott Vendor. Ship To Weyco Group, Inc. Southeast Shoe Distributor, Inc. Condition: 234 East Reservoir Avenue 1102 Memorial Avenue Milwaukee, Wi 53201 Atlanta, GA 30303 Excellent Phone: (312) 458-7474 Item # Description Size Quantity Unit Price Amount 1617 Stacy Adams Low Top Tie Black 9.0 D 1617 Stacy Adams Low Top Tie Black 9.5 D 25 $31.50 $787.50 31.50 1,575.0 1617 Stacy Adams Low Top Tie Black 10.0 D 31 50 1,575.00 1617 Stacy Adams Low Top Tie Black 10.5 D 31.50 1,575.00 1617 Stacy Adams Low Top Tie Black 11.0 D 31.50 1,575.00 1617 Stacy Adams Low Top Tie Black 11.5 D 31.50 787.50 1617 Stacy Adams Low Top Tie Black 12.0 D 31.50 787.50 1617 Stacy Adams Low Top Tie Black 130 D 31.5 787.50 1618 Stacy Adams Low Top Tie Brown 90 D 31.50 787.50 1618 Stacy Adams Low Top Tie Brown 9.5 D 31.50 1,575.00 1618 Stacy Adams Low Top Tie Brown 0.0 D 31.50 1,575.00 161 Stacy Adams Low Top Tie Brown 10.5 D 31.50 1,575.00 1618 Stacy Adams Low Top Tie Brown 11.0 D 31.50 1.575.00 1618 Stacy Adams Low Top Tie Brown 11.5 D 31.50 787.50 161 Stacy Adams Low Top Tie Brown 12.0 D 31.50 787.50 1618 Stacy Adams Low Top Tie Brown 130 D 31.50 787.50 Total Amount $18.900.00 Tax Paid Total Invoice: $18,900.00 Message Authorization Name: Bruce Penny Date: 12/26/21 Title: Purchasing Supervisor Signature: Bruce Penna 84Documents for Audit Procedure 3a (continued) Voucher Check #: 7579 Approval: JS Date: 02/27/22 Voucher #: 9170 Payee: Metro Cleaning Services Account #: 62000 Amount: $350.00 Paid Description: Monthly cleaning service Invoice Metro Cleaning Service # 19483 600 10 Street NW Atlanta, GA 30318 (404) 999-1818 Bill To Southeast Shoe Distributor, Inc 1102 Memorial Ave KT Atlanta, GA 30303 Phone: (404)555-5555 Due Date: 02/28/2022 Date Description Amount 01/30/22 January 2022 Cleaning Service $350.00 Total Amount Due: 350.00 Paid