I need some *((familiar with Integrated Audit Practice case assignments))* to help me complete this assignment as soon as possible. There is each worksheet that needs to complete missing information.

I have attached 3 files:

1. Worksheet that needs to be complete.

2. Integrated Audit Case: This is there reference for the assignment explanations.

3. Addition tips and suggestion if need.

1-1 1-1 OCEANVIEW MARINE COMPANY Balance Sheet December 31, 2015 ASSETS Current Assets Cash Accounts receivable: net (Notes 2 and 5) Inventories (Notes 1(a), 3, and 5) Prepaid expenses Deposits Total Current Assets Property, Plant, and Equipment (Notes 1(b) and 4) At cost, less accumulated depreciation TOTAL ASSETS LIABILITIES Current Liabilities Note payable -- Bank (Note 5) Accounts payable Accrued liabilities Federal income taxes payable Current portion of long-term debt (Note 6) Total Current Liabilities Long-term Liabilities Long-term debt (Note 6) TOTAL LIABILITIES STOCKHOLDERS' EQUITY Common stock (Note 7) Additional paid-in capital Retained earnings Total Stockholders' Equity TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY PBC 2015 2014 2013 $1,320,096 1,646,046 13,524,349 17,720 7,916 16,516,127 $1,089,978 1,285,593 12,356,400 15,826 5,484 14,753,281 $1,200,347 1,180,982 11,461,231 15,275 4,329 13,862,164 596,517 $17,112,644 612,480 $15,365,761 627,771 $14,489,935 $5,100,000 1,750,831 257,800 35,284 5,642 7,149,557 $4,250,000 1,403,247 217,003 45,990 5,642 5,921,882 $4,000,000 1,106,574 211,250 39,725 5,642 5,363,191 409,824 7,559,381 415,466 6,337,348 421,108 5,784,299 10,000 2,500,000 7,043,263 9,553,263 10,000 2,500,000 6,518,413 9,028,413 10,000 2,500,000 6,195,636 8,705,636 $17,112,644 $15,365,761 $14,489,935 The accompanying notes are an integral part of these financial statements OCEANVIEW MARINE COMPANY Statement of Income and Retained Earnings December 31, 2015 Sales Sales returns and allowances Net sales Cost of sales Gross profit EXPENSES Accounting and auditing Advertising Depreciation Bad debt expense Business publications Cleaning services Fuel Garbage collection Insurance Interest Legal Licensing and certification fees Linen service Medical benefits Miscellaneous Office supplies Payroll benefits Pension expense Postage and courier Property taxes Rent Repairs and maintenance Salaries and wages Security Telephone Travel and entertainment Utilities Total Expenses Net income before income tax Income tax expense NET INCOME Retained earnings at beginning of year Less: Dividends Retained earnings at end of year 1-2 PBC 2015 $26,456,647 37,557 26,419,090 19,133,299 7,285,791 2014 $22,889,060 27,740 22,861,320 16,530,114 6,331,206 2013 $20,950,521 28,753 20,921,768 15,176,410 5,745,358 48,253 28,624 46,415 148,252 1,231 15,817 64,161 4,870 16,415 427,362 69,752 33,580 3,044 4,178 47,739 26,390 569,110 40,770 8,623 3,978 158,526 51,316 4,310,281 96,980 5,707 21,633 63,329 6,316,336 969,455 344,605 624,850 46,750 27,947 46,578 162,344 872 12,809 53,566 4,674 16,303 364,312 29,914 27,142 1,939 4,624 16,631 23,289 461,214 37,263 20,962 27,947 120,000 26,439 3,970,092 100,098 7,092 16,303 41,919 5,669,023 662,183 239,406 422,777 44,610 24,654 41,538 147,629 115 11,620 41,593 5,650 16,144 356,829 22,654 24,148 2,393 4,287 25,430 21,462 430,688 18,900 22,511 26,144 112,846 26,519 3,703,580 93,800 8,611 14,952 40,827 5,290,134 455,224 199,631 255,593 6,518,413 100,000 $7,043,263 6,195,636 100,000 $6,518,413 6,040,043 100,000 $6,195,636 The accompanying notes are an integral part of these financial statements OCEANVIEW MARINE COMPANY Statement of Cash Flows December 31, 2015 1-3 PBC 2015 Cash flows from operating activities Net income Adjustments to reconcile net income to net cash from operating activities: Depreciation of property, plant, and equipment Increase in accounts receivable Increase in inventories Increase in prepaid expenses and deposits Increase in accounts payable Increase in accrued liabilities Increase in federal income taxes payable Increase in note payable -- bank Net cash provided by operating activities Cash flows from financing activities Repayment of long-term debt Dividends Net cash used in financing activities Cash flows from investing activities Acquisition of long-term assets Net increase (decrease) in cash Cash at beginning of year Cash at end of year 2014 2013 $624,850 $422,777 $255,593 46,415 (360,453) (1,167,949) (4,326) 347,584 40,797 (10,706) 850,000 366,212 46,578 (104,611) (895,169) (1,706) 296,673 5,753 6,265 250,000 26,560 41,538 46,524 (562,215) 2,347 223,827 7,923 7,851 200,000 223,388 (5,642) (100,000) (105,642) (5,642) (100,000) (105,642) (5,642) (100,000) (105,642) (30,452) (31,287) (29,835) 230,118 1,089,978 $ 1,320,096 (110,369) 87,911 1,200,347 1,112,436 $ 1,089,978 $ 1,200,347 The accompanying notes are an integral part of these financial statements OCEANVIEW MARINE COMPANY Notes to Financial Statements December 31, 2015 1-4 PBC 1. Significant accounting policies a. Inventories are recorded at the lower of cost or net realizable value. The perpetual inventory method is used to account for cost of goods sold. b. Long-term assets are recorded at cost. Long-term assets are depreciated as follows: Automobiles Equipment Office equipment Building Rate 30% 20% 20% 4% Method declining balance declining balance straight-line straight-line On trade-ins, no gain or loss is recorded on disposal where a similar property is acquired. A half-year of depreciation is recorded in the year of acquisition and the year of disposal. 2. Accounts receivable Accounts receivable -- December 31 Allowance for doubtful accounts Accounts receivable -- net 2015 $1,762,682 -116,636 $1,646,046 2014 $1,402,229 -116,636 $1,285,593 2013 $1,297,618 -116,636 $1,180,982 2015 $13,167,170 200,390 156,789 $13,524,349 2014 $12,030,247 182,983 143,170 $12,356,400 2013 $11,187,449 178,855 94,927 $11,461,231 3. Inventories Boats Repair parts Supplies 4. Long-term assets -- net Land Automobiles Equipment Office equipment Building Docks 2015 2014 2013 undepreciated undepreciated undepreciated balance balance balance $100,000 $100,000 $100,000 10,907 8,597 15,681 83,467 84,008 71,186 25,291 25,495 28,996 376,852 394,380 411,908 0 0 0 $596,517 $612,480 $627,771 OCEANVIEW MARINE COMPANY Notes to Financial Statements December 31, 2015 1-5 PBC 5. Notes payable -- Bank The company has a revolving line of credit with First National Bank for up to $6,500,000. The line of credit is secured by general assignment of accounts receivable and inventory with interest payable monthly at prime plus 1%. At December 31, 2015, $5,100,000 was outstanding on this line of credit. The interest rate is prime plus 1%. 6. Long-term debt Ending balance Payments due within one year Long-term portion 2015 $415,466 -5,642 $409,824 2014 $421,108 -5,642 $415,466 2013 $426,750 -5,642 $421,108 In 2002, the company entered into an agreement whereby Southeastern Enterprises acquired 30% ownership in the company and also advanced the company a loan of $564,200. The required annual payment of principal is $5,642. Interest on the outstanding balance is payable monthly at the bank prime rate. If Southeastern Enterprises ceases to be a shareholder, any remaining balance is due and payable in three years. 7. Stockholders' capital 2015 Authorized: 50,000 common shares $1 par value Issued: 10,000 common shares 2014 2013 $10,000 $10,000 $10,000 8. Contingent liability A customer bought a boat from the company that subsequently sank. No injuries or death were reported. The customer has made a claim against the company. The incident is being investigated and the company has not admitted liability. No estimate of any liability can be made. Oceanview Marine Company Ratio Analysis December 31, 2015 LIQUIDITY RATIOS: 2-1 Unadjusted PERCENT INDUSTRY 12/31/2015 12/31/2014 CHANGE CHANGE AVERAGE Current ratio current assets / current liabilities 2.31 2.49 -0.18 -7.23% 1.53 0.42 0.40 0.02 5.00% 0.43 16.05 17.78 -1.73 -9.73% 20.29 Quick ratio (current assets - inventory) / current liabilities Sales / Receivables net sales / net ending receivables Number of days sales in A/R 17.99 net ending receivables / (net sales / 365) Inventory turnover 1.41 cost of sales / average inventory PROFITABILITY/PERFORMANCE RATIOS: Gross profit margin (%) 23.83% gross profit / net sales Income before taxes / Owners' equity 0.06 net income before taxes / total owners' equity Income before taxes / Total assets net income before taxes / total assets 0.06 0.04 0.02 50.00% 0.04 44.29 37.33 6.96 18.64% 19.07 1.54 1.49 0.05 3.36% 1.32 2.82 2.59 0.23 8.88% 2.18 0.56 0.59 -0.03 -5.08% 0.31 0.06 0.07 -0.01 -14.29% 0.47 Sales / Long-term assets net sales / net long-term assets Sales / Total assets net sales / total assets Sales / Working capital net sales / (current assets - current liabilities) SOLVENCY RATIOS: Owners' Equity / Total assets total stockholders' equity / total assets Long-term assets / Owners' equity net long-term assets / total stockholders' equity Current liabilities / Owners' equity current liabilities / total stockholders' equity 1.13 Total Liabilities / Owners' equity total liabilities / total stockholders' equity 2.03 OCEANVIEW MARINE COMPANY Working Trial Balance December 31, 2015 Account 1010 1015 1020 1100 1110 1205 1210 1215 1300 1400 1500 1510 1511 1520 1521 1530 1531 1540 1541 1550 1551 2010 2100 2110 2200 2300 2400 2500 2710 3100 3200 3500 3510 Description Petty cash Bank - Payroll Bank - General Accounts receivable Allowance for doubtful accts Inventory - boats Inventory - repair parts Inventory - supplies Prepaid expenses Deposits Land Automobiles Accum. deprec. - automobiles Equipment Accum. deprec. - equipment Office equipment Accum. deprec. - office equip. Building Accum. deprec. - building Docks Accum. deprec. - docks Accounts payable - trade Wages and salaries payable Payroll withholdings payable Federal income taxes payable Interest payable Notes payable - bank Long-term debt - current portion Long-term debt Common stock Additional paid-in capital Retained earnings Dividends paid 3-1 PBC Unadjusted Trial Balance 200 2,000 1,317,896 1,762,682 116,636 13,167,170 200,390 156,789 17,720 7,916 100,000 42,772 31,865 134,919 51,452 49,028 23,737 525,840 148,988 21,000 21,000 1,750,831 182,360 42,972 35,284 32,468 5,100,000 5,642 409,824 10,000 2,500,000 6,518,413 100,000 Adjustments CR CR CR CR CR CR CR CR CR CR CR CR CR CR CR CR CR Income Statement Balance Sheet 200 2,000 1,317,896 1,762,682 116,636 13,167,170 200,390 156,789 17,720 7,916 100,000 42,772 31,865 134,919 51,452 49,028 23,737 525,840 148,988 21,000 21,000 1,750,831 182,360 42,972 35,284 32,468 5,100,000 5,642 409,824 10,000 2,500,000 6,518,413 100,000 3-2 CR CR CR CR CR CR CR CR CR CR CR CR CR CR CR CR CR OCEANVIEW MARINE COMPANY Working Trial Balance December 31, 2015 Account 4100 4500 5100 6010 6020 6050 6100 6120 6240 6530 6810 6820 6830 7110 7130 7150 7230 7420 7560 7580 7620 7630 7710 7810 7850 7980 9100 9110 9120 9200 9210 9220 Description Sales revenue Sales returns and allowances Cost of goods sold Accounting and auditing fees Advertising Depreciation Bad debt expense Business publications Cleaning service Fuel Garbage collection Insurance Interest Legal Licensing & certification fees Linen service Miscellaneous Office supplies Postage Property taxes Rent - warehouse Repairs and maintenance Security Telephone Travel and entertainment Utilities Salaries - management Salaries - office Salaries - Sales Wages - Mechanics Wages - Rental Wages - Warehouse 3-2 Trial Balance 26,456,647 CR 37,557 19,133,299 48,253 28,624 46,415 148,252 1,231 15,817 64,161 4,870 16,415 427,362 69,752 33,580 3,044 47,739 26,390 8,623 3,978 158,526 51,316 96,980 5,707 21,633 63,329 401,809 55,512 2,660,806 264,583 100,312 827,259 Adjustments Income Statement 26,456,647 CR 37,557 19,133,299 48,253 28,624 46,415 148,252 1,231 15,817 64,161 4,870 16,415 427,362 69,752 33,580 3,044 47,739 26,390 8,623 3,978 158,526 51,316 96,980 5,707 21,633 63,329 401,809 55,512 2,660,806 264,583 100,312 827,259 Balance Sheet 3-3 OCEANVIEW MARINE COMPANY Working Trial Balance December 31, 2015 Account 9500 9600 9610 9900 Description Payroll benefits Medical benefits Pension expense Income tax expense TOTAL DR TOTAL CR NET INCOME 3-3 Trial Balance 569,110 4,178 40,770 344,605 43,438,119 43,438,119 624,850 Adjustments Income Statement 569,110 4,178 40,770 344,605 25,831,797 26,456,647 624,850 Balance Sheet 17,606,322 16,981,472 OCEANVIEW MARINE COMPANY Summary of Possible Misstatements December 31, 2015 90-1 Possible Misstatements - Overstatement (Understatement) Description of Misstatement Obsolete inventory Understated prepaid insurance Understated accrued bonuses W/P Reference 22-11 23-2 31-2 Likely Identified Aggregate Income MisstateMisstateCurrent Noncurre Current Before ment ment Assets nt Assets Liabilities Taxes 10,900 10,900 10,900 10,900 (4,350) (4,350) (4,350) (4,350) (2,987) (2,987) (2,987) 2,987 a. Totals b. Adjusted measurement base (e.g., net income before taxes after proposed adjusting 6,550 0 (2,987) 9,537 0 (6,550) 0 0 0 (2,987) 0 (9,537) entries are recorded) c. Materiality percentage applied to base d. Materiality (b x c) (rounded) e. Amount remaining for further possible misstatements (d - |a|) Conclusion: Oceanview Marine Company Items for Management Letter December 31, 2007 93-1 WX 02/26/2013 1. The company pays significant amounts of dividends because of the passive ownership interest of Southeastern Enterprises. These dividends are not deductible for income tax purposes. Purchasing the stock of these outside investors, by borrowing against equity, could eliminate the need for dividends. Alternatively, the company could consider becoming an S Corporation. However, this option should be carefully evaluated in light of the company's plans to go public in the future. 2. During our tests of internal controls over sales transactions, we noted that, on occasion, merchandise is shipped to customers without prior credit approval. We recommend that steps be taken to ensure that all shipments are supported by approved customer orders and authorized shipping documents, and that all such approvals be made prior to shipment. In addition, we recommend that management implement an internal verification policy to check for proper debit/credit classification for sales transactions. 3. During our observation of the physical inventory count taken by your employees, we noted that approximately $11,000 of obsolete inventory was included in the count. We recommend that on an annual basis, all obsolete inventory be physically segregated from the rest of the inventory prior to the year-end count and that procedures be implemented to remove obsolete inventory from the general ledger. 4. During our observation of the physical inventory count, we also noted that the parts storeroom did not appear to be adequately secured. Several of the storage areas were disorganized, and the storeroom did not have locks on all entrances. We recommend that you install proper locks on all entrances and have each storage area be better organized to increase the likelihood of an accurate count and decrease the risk of loss. Oceanview Marine Company Items for Management Letter (continued) December 31, 2007 5. 6. 7. 8. 9. 93-2 WX 02/26/2013 Assignment 10 (Complete the audit) Review the following authoritative literature: AS 6: Evaluating Consistency of Financial Statements AS 15: Audit Evidence AU 329: Analytical Procedures AU 333: Management Representations AU 341: The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern AU 380: The Auditor's Communication with Those Charged with Governance AU 410: Adherence to Generally Accepted Accounting Principles AU 530: Dating of the Independent Auditor's Report AU 560: Subsequent Events iPAC Assignment 10: Complete the Audit Requirement, Workpaper(s) Tips and Suggestions In general, things to keep in Know your rules for normal debit and credit account balances, e.g. a mind credit adjustment to a normal credit balance account increases that account balance Use the audit report in your textbook and Class Notes as a guide, considering the following: What year financial statements did you audit? Client is privately held (GAAS versus PCAOB standards) Internal controls over financial reporting were not audited Balance sheets should balance \"Net\" means \"gross\" less \"something\" Page 1 of 2 d., 90-1 Your Workpaper 90-1 should look as follows through line a. Totals: Possible Misstatements - Overstatement (Understatement) Current Assets Noncurrent Current Income Before Assets Liabilities Taxes Description of Misstatement W/P Reference Identified Misstatement Likely Aggregate Misstatement Obsolete inventory Understated prepaid insurance Understated accrued bonuses Overstated A/R Understated A/P Understated Inventory a. Totals 22-11 10,900 10,900 10,900 10,900 23-2 (4,350) (4,350) (4,350) (4,350) 31-2 (2,987) (2,987) 21-21 0 3,380 30-24 0 (13,983) 22-18 (740) (2,273) (2,987) 3,380 3,380 (13,983) (2,273) 7,657 2,987 13,983 (2,273) 0 (16,970) 24,627 b. Adjusted measurement base c. Materiality % applied to base d. Materiality (b x c) (rounded) e. Amount remaining for further possible misstatements (d - a) d., 90-1 Lines b. Adjusted measurement base, and c. Materiality % applied to base will depend on 2 things: 1) The Measurement Base you chose in iPAC 3 on Workpaper 5-2-a and the Percentage Applied (for example, you may have chosen Pre-tax income and 8%), and 2) Any adjustment made to that Measurement Base (for example, if you chose Pre-tax income, that number has been modified from the adjustments made). Completing Assignment 10 This is the Requirement that needs to be done. WPs 1-1, 1-2, 1-3, 1-4, 1-5, Trial Balance (3-1, 3-2, 3-3), 90-1, 93-2, Auditor's Report Page 2 of 2 Integrated Audit Practice Case FIFTH EDITION David S, Kerr o Randal J. Elder ARMOND DALTON PUBLISHERS INC. Armond Dalton Publishers, Inc. Okemos, Michigan > Alvin A, Arens Table of Contents Assignments Booklet and Permanent File Guidelines for completing the Integrated Audit Practice Case: Overview of the practice case Learning objectives Student's role Guidelines for preparing audit documentation Workpaper fonts used in the practice case Typical set of audit files Indexing Cross-referencing Electronic workpapers in the Integrated Audit Practice Case Acknowledgments Introduction, page 1 Introduction, page 2 Introduction, page 2 Introduction, page 2 Introduction, page 4 Introduction, page 4 Introduction, page 4 Introduction, page 6 Introduction, page 6 Introduction, page 7 Assignments: 1 2 3 4 Review client background information Perform preliminary analytical procedures Determine materiality and assess risks Assess control risk and plan tests of controls and substantive Assignment 1, page Assignment 2, page Assignment 3, page Assignment 4, page tests of transactions 5 6 7 Perform tests of controls and substantive tests of transactions Perform audit of accounts receivable Perform audit of accounts payable 8 Perform audit of cash 9 Perform audit of inventory 10 Complete the audit Assignment 5, page Assignment 6, page Assignment 7, page Assignment 8, page Assignment 9, page Assignment 10, page Permanent File: Permanent file index Client background information Chart of accounts Client acceptance form Organization chart Appointment of auditors letter Audit takeover letter and reply Shareholder resolutions Permanent file, Permanent file, Permanent file, Permanent file, page 1 page 2 page 7 page 9 Permanent file, page 17 Permanent file, page 18 Permanent file, page 19 Permanent file, page 21 Note: The permanent file is a separate file containing information of a permanent, on-going nature about the client. The permanent file is normally maintained separate fi*om the current year audit files and is included behind the assignments in this booklet for convenience. INTRODUCTION Guidelines for completing the integrated Audit Practice Case Overview of the practice case The Integrated Audit Practice Case consists of one booklet containing the assignments and permanent file, a shrink-wrapped set ofthree-hole punched workpapers, and one folder containing client documents. (1) Assignments and Permanent File (this booklet) Assignments Provides an overview of this practice case and guidance for preparing workpapers, as well as the 10 assignments you will complete in this practice case. The assignments are as follows: Assignment 1: Assignment 2: Assignment 3: Assignment 4: Assignment 5: Assignment 6: Assignment 7: Assignment 8: Assignment 9; Assignment 10: Review client background information Perform preliminary analytical procedures Determine materiality and assess risks Assess control risk and plan tests ofcontrols and tests of transactions Perform tests of controls and substantive tests of transactions Perform audit of accounts receivable Perform audit of accounts payable Perform audit of cash Perform audit of inventory Complete the audit Permanent File This booklet contains the permanent file workpapers that provide information about the client's business, industry and accounting system. (2) Workpapers These three-hole punched workpapers are used to complete the assignments and include workpapers used when (1) planning the audit, (2) studying and testing internal controls, including related substantive tests of transactions, (3) performing test of balances, and (4) completing the audit. Note: You will need to purchase a I Vi inch three-ring binder, remove the workpapers from the shrink wrapping, and place the workpapers in the binder. (3) Client Documents Folder Contains vouchers, invoices, receiving reports, purchase orders, and other documents you will use to perform many of your audit procedures. Note: Many of the workpapers are also provided in Microsoft Excel format on the CD included with this practice case. Introduction Page 1 At the beginning of each assignment is a flowchart showing the overall flow of audit procedures and where the assignment fits in that flow. Following the flowchart in each assignment is a discussion of important auditing concepts related to the assignment. The assignment's requirements are then presented; you must perform each of the requirements to complete the assignment. A list of discussion questions concludes each assignment. These discussion questions are optionalyour instructor will tell you which questions he or she would like you to answer. Learning objectives The learning objectives for the Integrated Audit Practice Case are: To help you understand the interrelationships among the audit decisions involved in audit planning, audit testing, and the formation of the auditor's opinion. To obtain hands-on practice in the preparation of an audit workpaper file. To develop skills in analyzing transactions and applying auditing knowledge. To develop skills in the application of auditing standards. To evaluate the audit evidence accumulated to support the auditor's opinion and the issuance of the audit report. Student's role You are a first-year member of the audit staff at Lilts Berger & Associates, CPAs. You have been assigned by Charles Ward, the engagement partner, to participate in the audit of Oceanview Marine Company's 2012 financial statements. You will be replacing Bill Cullen, another member of the audit staff at Lilts Berger & Associates, who is working on other audits and does not have the time to complete the audit of Oceanview Marine Company. Oceanview's year-end is December 31. The current date is February 18, 2013, and you have just replaced Bill. You are to complete the audit and prepare the audit file for Charles Ward's review. This booklet contains the specific assignments you need to perform to complete the audit. The shrinkwrapped material contains the workpapers you will complete during the audit. Guidelines for preparing audit documentation Audit workpapers provide the principal source of support for the auditor's opinion. Any document prepared (by the client or auditor) during an audit to support the audit conclusion is considered audit documentation and is appropriately indexed and placed in the audit file. Workpapers are a permanent record of the quality and extent of work performed, including compliance with auditing standards. Proper workpapers constitute the first line of defense in any legal proceeding against an auditor. Therefore, they must be clear, complete, concise, and "speak for themselves". General guidelines 1. For workpapers completed manually, pencil (not pen) should be used to facilitate corrections. 2. Be concise, logical, accurate, and complete. Information on each workpaper should be clear to the reader. Workpapers should not contain too much information. Audit tickmark explanations should be complete but also concise. 3. Be neat in preparing workpapers. An auditor's work should be a source of pride, as it will be reviewed several times in the audit process. 4. Initial a workpaper as having been prepared only when the workpaper is completed. Introduction Page 2 Workpaper information The preparer should make sure that each workpaper includes the following information: At the top ofeach page: Client name Title describing workpaper contents Client's year-end date In the top right corner ofeach page: Workpaper index number. Initials (either hand-written or typed) of the staff person who completed the workpaper (initial after you have completed all the procedures required for that workpaper). Date the workpaper was completed. Initials of the senior, manager, and partner who reviewed the workpaper (these will be left blank in the Integrated Audit Practice Case as the audit file is yet to be reviewed). Client involvement Prior to an audit, the client should be requested to gather the necessary records and (where possible) prepare certain analyses and workpapers. This policy saves time and reduces audit fees. Any workpapers prepared for the auditor by the client should be marked as "PBC" (Prepared By Client). Audit tickmarks Each CPA firm uses a standard set of audit tickmarks. Standardization facilitates substitution of staff on audit engagements and review of workpapers by seniors, managers, and partners. The following guidelines should be adhered to: Make sure audit tickmarks are neat and distinguishable. Use different tickmarks for different tests. Standardize tickmarks within a section as much as possible. For example, in many CPA firms, the capital letter F is a standard tickmark used to indicate that a column of numbers has been footed by the auditor (footed means the numbers have been re-added to verify that the total is correct). In this practice case, all tickmarks used on a particular workpaper should be explained in a "tickmark legend" at the bottom of the workpaper. In the case of a multiple-page document such as the accounts receivable listing, the tickmark legend may appear at the end of that document. In the tickmark legend, when explaining tickmarks that refer to another document (for example, "traced to..."), describe specifically which document was used (for example, "traced to cash receipts journal"). Prepare an explanation for each tickmark only after all work performed for the procedure has been completed. Introduction Page 3 Workpaper fonts used in the practice case Ordinarily, workpapers in an audit file have various types of handwritten notes, initials, and signatures. In this practice case, initials and signatures are represented by various and fonts. Audit work performed by Bill Cullen is indicated on the workpapersby the Times New Roman Italic font. When completing workpapers manually, you should use pencil handwriting to conform to common practice. When completing workpapers using the computer, you should use the "Arial" font (to distinguish your work from that ofBill's). Typical set of audit files Workpapers are grouped into audit files according to content. The files typically established by auditors for each audit client include: Current audit file Contains all workpapers applicable to the year under audit. Permanent file Contains information of a historical or continuing nature about the audit and the client. Corporate tax file (not included in Contains tax returns as filed and/or amended together with notice(s) ofassessment or reassessment, notice(s) of objection, this practice case) and other tax information. indexing Indexing is used to organize the workpapers and to facilitate the cross-referencing and filing of information. Each firm develops a standard method of indexing workpaper files. Your firm. Lilts Berger & Associates, CPAs, uses the following indexing system for current audit files: Section Number Description Location in this practice case Audit Planning 1 Financial Statements 2 3 4 5 6 Analytical Procedures Working Trial Balance Engagement Letter Assessments of Risks and Materiality Audit Planning Checklist; Time and Fee Budget Current Workpapers Current Workpapers Current Workpapers Current Workpapers Current Workpapers Current Workpapers Assess Control Risk; Perform Test of Controls and Substantive Tests of Transactions 10 11 Study of Internal Control Environment Study of Controls Sales and Cash Receipts 12 Tests of Controls and Substantive Tests of Transactions 13 Sales and Cash Receipts Study of Controls Acquisitionsand Cash Disbursements 14 Tests of Controls and Substantive Tests ofTransactions Acquisitions and Cash Disbursements Introduction Page 4 Current Workpapers Current Workpapers Current Workpapers Current Workpapers Current Workpapers Section Number Description Location in this practice case Tests of Balances Current Workpapers Current Workpapers Current Workpapers 20 Cash 21 Accounts and Notes Receivable 22 Inventories 23 25 Prepaid Expenses Long-term Investments Property, Plant, and Equipment 30 Accounts Payable Current Workpapers 31 Accrued Liabilities Not included 32 Not included 34 Notes and Loans Payable Taxes Payable Long-term Debt 35 Other Liabilities Not included 40 Common Stock 41 Additional Paid-in Capital and Retained Earnings Not included Not included 24 33 Not included Not included Not included Not included Not included Completing the Audit 90 91 92 93 Summaiy of Possible Misstatements Subsequent Events Representation Letter Management Letter Current Workpapers Current Workpapers Current Workpapers Current Workpapers Permanent File 101 Client backgroimd information 102 Chart of accounts 103 104 105 106 Client acceptance form Organization chart Appointment of auditors letter Audit takeover letter and reply 107 Shareholder resolutions Permanent file (at end ofthis booklet) Permanent file (at end ofthis booklet) Permanent file (at end ofthis booklet) Permanent file (at end of this booklet) Permanent file (at end of this booklet) Permanent file (at end of this booklet) Permanent file (at end of this booklet) Each account balance on the financial statements is supported by workpapers organized into sections, beginning with section 20 (cash). Within each section, workpapers are arranged from general to specific. Each section begins with a leadsheet, which summarizes the balance(s) and adjustment(s) for that account(s). Each leadsheet is indexed as the first workpaper in each section (e.g., "20-1" for the cash leadsheet) and the pages following are sequencedin order: 20-2,20-3, and so on. Behind each leadsheet is the audit program. The audit program lists the procedures that are to be performed by the auditor and ends with a conclusion as to whether the account balance is fairly presented. Behind the audit program are the workpapers that document the tests performed by the auditor. Occasionally, an additional workpaper or workpapers must be inserted after indexing of a section is complete. Lilts Berger & Associates adds a lower case letterto such workpapers, as follows: 20-1-a and 20-1-b. In the unlikely event that another workpaper needed to be inserted between workpaper 20-1-a and workpaper 20-1-b, it would be indexed as 20-1-a-i. In the permanent file, workpapersare indexed as 101-1,101-2, 102-1, 102-2, and so on. Introduction Page 5 Cross-referencing Cross-referencing is used to indicate when one workpaper has information relevant for another workpaper. Cross-references written to the left of an amount are normally read "fi-om..." (in other words, the amount comesfrom another workpaper or source); cross-references written to the right of, or undemeath, an amount are read "to..." (in other words, the amount is carried forward to another workpaper, summary, or leadsheet). Electronic workpapers In the Integrated Audit Practice Case Most CPA firms use notebook computers extensively in the audit process, and many firms perform "paperless audits" in whichworkpapers are created, completed, reviewed, and storedelectronically. In this practice case, paper copies of all of the workpapers needed to complete the case manually are provided in the Workpaper materials. However, use of a computerto complete the practice case provides efficiency advantages over completingthe case manually. Accordingly, many (but not all) of the workpapers are available in Microsoft Excel format on the CD included with this practice case. Microsoft Excel is used extensively by CPA firms in the audit process to create workpapers, financial statements, working trial balances, and to perform analytical procedures such as ratio and trend analysis. Before beginning your work on the practice case, check with your instructor to determine which of the following three options you should use when completing the audit workpapers: 1. Complete all workpapersmanually, ignoring the Excel files on the CD. 2. Use a computer to complete the workpapers available on the CD, and print out copies of the workpapers as you complete them. 3. Use a computer to complete the workpapers available on the CD, save the completed workpapers, and submit the file along with the remaining workpapers completed manually to your instructor for grading. If you will be using option 1, you can ignore the rest of this section. If you use options 2 or 3, you will need access to a computer with a CD-ROM drive, a printer, and Microsoft Excel. In addition, you need a basic understanding of how to use Microsoft Excel and Microsoft Windows. Before you begin work on the practice case, copy all files on the CD to your computer's hard drive and store the CD in a safe place (see the following section "Copying the workpaper files"). Be sure to make backup copies of all your completed workpaper files. Note: To prevent accidental modifications of the Excel files, many of the cells have been "locked" and "protected." If you need to change any of these cells, you must first unprotect them by clicking on TOOLS, PROTECTION, UNPROTECT SHEET on the menu bar in Excel. If you're using Excel 2010, click REVIEW, UNPROTECT SHEET. Introduction Page 6 Acknowledgments We express our appreciation to CGA-Canada for permission to adapt materials from the CGA Public Practice Manual and the CGA Practice Set 3. This practice case has benefited significantly from the input of CGA-Canada. There are several individuals who played key roles in designing, testing, and finalizing these materials. We are grateful for their contributions and efforts. Carol Borsum, CPA. Carol is a CPAwho spent eight years working on the audit staff of a large CPA firm. She spent hundreds of hours doingthe entire case,making recommendations for revisions and making certain that the materials and related worlqiapers are relevant and realistic. Mark Beasley, Ph.D., CPA. Mark is a professor at North Carolina State University. He spent five years as a practicing auditor before becoming an Ernst & Young AICPA fellow and an AICPAtechnical staff manager for the Auditing Standards Board. His extensive and valuable comments have made a significant contribution to this practice case. D. Dewey Ward, Ph.D. Our fiiend and colleague has used these materials in auditingcourses many times and has provided significant guidance and suggestions for their improvement. Steve Glover, Ph.D., CPA. Steve is a professor at Brigham Young University and has provided useful comments to help improve the case. Ambrose Jones III, Ph.D, CPA. Ambrose is a professorat The University of North Carolina - Greensboro and has used the case several times in the last four years and has provided several suggestions for the current edition. Nancy Schneider, MPA, CPA, CMA. Nancy, a professor at Lynchburg College, has used the case since its first edition. We appreciatethe time she has taken to send us her comments and suggestions for improving the case. Lynne Wood. Lynne has provided valuable assistance in formatting the materials. Her dedication, competence, and perseverance are greatly appreciated. DSK RJE AAA Introduction Page 7 tests of controls engagement letter (Assignment 1) substantive tests of transactions transactions committee and management inherent risk the client's audit audit risk, and fraud risk Communicate with ssue audit results Evaluate representation letter Obtain client Assess acceptable of the tests the results 5. Evaluate procedures the audit analytical procedures Perform final events Review subsequent auditor s report tests of substantive 4. Perform sample items for testing 3. Select sample size 2. Decide specific audit procedures 1. Decide the tests of balances liabilities Review contingent Complete the audit Decide preliminary materiality level Perform preliminary anaiyticai procedures and obtain Design and perform Design and perform Substantive approach Design and perform Combined approach control risk and assess internal control Design and perform of Account Balances and Substantive Tests of Transactions Understand Perform Substantive Tests Assess Control Risk; Perform Tests of Controls acceptance Decide client I (Assignment 1) client's business understanding of Obtain independence Establish Overall Audit Plan > 3 O a) 3 fi) o PT (Q O" O o (D Q. o 0) o' * (ft ?r (ft fi) (ft (ft (D (ft (ft Q. fi) 3 *