C' 0 Gusers,ipfw,edu/pollockk/sa599manual.pdf Q l 0 a w. Apps o Tumblr '3 Facebook ' Twitter ' VauTube-Broadcast j goals 7 cpa 7' onlineclass \"i tumblrthings H tvshows '7 TESLA 8A899_Studeni Educational Manual .doc V. CASE STUDY NO. 2 ROCKY MOUNTAIN ELECTRIC Rocky Mountain Electric is an elecuical wholesaler with two locationsone in Denver, and another in Aspen that just recently opened The audit senior stayed in Denver to do the audit at the main store, and a staff accountant was sent to the Aspen (cross-state) store The staff accountant returned aer a week and said that everything was ne at the Aspen store, which was good, thought the senior, because the audit fee had been cut Earn the previous year, and the audit team was under time pressure to nish the job. One of the first things the senior did was look at the audit differences, and she noticed an adjustment in excess of $100,000a debit to sales and a credit to accounts receivable \"To adjust the general ledger (GL) to the aceotmts receivable trial balance at the cross-state store" is how the description readt She asked the staff accountant how an error that big could happen, and he told her the store manager said they had some problems installing the accounting system at the new store The senior thought the adjustment was proper, since the general ledger balance was now in agreement with the subsidiary ledger. A little while later she was reviewing the analytical procedures and noted that the gross margin percentages at the cross-state store were quite a bit lower than the margins at the main store. In the workpapers was the explanation, \"Per store manager, prices were reduced at cross-town store to attract customers in a new location." The next day, the senior was talking to the controller at the main store, and she mentioned how it looked like there had been a few problems at the Aspen store but they were working them out \"I guess those price reductions you had earlier in the year really worked to attract new customers,\" she said. \"Price reductions?\" said the controller. \"What price reductions?\" The company was a wholesale distributorthey didn't have sales like one might nd in a retail store. The senior then brought up the problem the company had in installing the accounts receivable system at the Aspen store. The controller said that the senior must have been mistaken because no problems had ever been reported by the store manager. The senior realized something wasn't right, and aer consulting with the manager and partner, the auditors discussed their concerns with the controller and company owner. The client and auditors agreed to investigate the situation further, so the auditors expanded their procedures, tracing customer payments for the Aspen store back and forth from the subledger to the GLt That expanded testwork led to the discovery that the manager at the Aspen store was stealing payments by customers on accounts That's why the subledger was out of balance with the GL. To cover it up, the manager debited the sales account, which was why the gross margins didn't make sense. 5:08 PM 9N'l4'20l7 U D SASQ9_StudentEducatio >