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Newham, Inc. Trial Balances for years ending December 31, 2013, 2014 and 2015 Account Description Cash on Hand Regular Checking Account Payroll Account Accounts Receivable Allowance for Doubtful Accounts Inventory Prepaid Insurance Office Supplies Land Buildings and Land Improvements Office Equipment and Furniture Accum. Depreciation Other Noncurrent Assets Accounts Payable Wages Payable Accrued Liabilities Line of Credit Common Stock Paid-in Capital Retained Earnings Sales Sales Returns Warranty Expense Cost of Goods Sold Freight Advertising Expense Auto Expenses Depreciation Expense Warehouse Salaries Legal and Professional Expense Bad Debt Expense Insurance Expense Maintenance Expense Utilities Phone Postal Miscellaneous Office Expense Payroll Tax Exp Retirement Plan Ex Rent or Lease Expense Administrative Wages Expense Interest Expense Income Tax Expense - Federal Income Tax Expense - State 2013 $ 2,400 $ 747,000 1,025 513,000 (78,525) 1,531,507 9,143 259 846,250 759,882 841,521 (423,800) 250 (791,397) (36,838) (1,648) (25,000) (1,531,250) (1,278,750) (796,136) (1,984,641) 12,979 3,753 856,326 8,689 12,425 6,218 26,250 91,730 6,417 8,032 6,428 5,420 9,554 5,467 642 1,279 97,151 75,000 54,357 394,024 2,000 6,250 3,345 2014 $ Change 2,548 $ 148 553,960 (193,040) 860 (165) 697,092 184,092 (87,691) (9,166) 1,585,734 54,227 8,305 (838) 565 306 ### 771,882 12,000 580,589 (260,933) (351,643) 72,157 ### (488,867) 302,530 (54,513) (17,675) (1,452) 196 (23,250) 1,750 ### ### (1,087,041) (290,905) (1,620,560) 364,081 32,347 19,368 7,104 3,351 640,300 (216,026) 9,095 406 15,125 2,700 5,763 (455) 72,157 45,907 94,802 3,072 5,113 (1,304) 7,569 (463) 5,085 (1,343) 6,220 800 7,855 (1,699) 8,911 3,444 740 98 3,879 2,600 87,840 (9,311) 60,000 (15,000) 51,363 (2,994) 344,399 (49,625) 1,860 (140) 4,240 (2,010) 3,200 (145) %Change 6% $ -26% -16% 36% 12% 4% -9% 119% 0% 2% -31% -17% 0% -38% 48% -12% -7% 0% 0% 37% -18% 149% 89% -25% 5% 22% -7% 175% 3% -20% -6% -21% 15% -18% 63% 15% 203% -10% -20% -6% -13% -7% -32% -4% 2015 2,599 $ 643,802 945 942,528 (42,552) 1,599,078 7,722 982 846,250 771,882 595,169 (355,433) 250 (450,648) (8,145) (1,546) (35,690) (1,531,250) (1,278,750) (1,232,634) (2,064,809) 23,096 4,481 791,035 5,068 17,507 4,713 33,791 96,792 3,406 3,800 5,774 7,629 5,600 5,651 360 25,390 86,672 63,000 53,705 336,566 1,860 9,540 2,800 $ Change 51 89,842 85 245,436 45,139 13,344 (583) 417 14,580 (3,791) 38,219 46,368 (94) (12,440) (145,593) (444,249) (9,251) (2,623) 150,735 (4,027) 2,382 (1,050) (38,366) 1,990 (1,707) (3,769) 689 1,409 (2,255) (3,260) (380) 21,511 (1,169) 3,000 2,342 (7,833) 5,300 (400) %Change 2% 16% 10% 35% -51% 1% -7% 74% 0% 0% 3% 1% 0% -8% -85% 6% 54% 0% 0% 13% 27% -29% -37% 24% -44% 16% -18% -53% 2% -33% -50% 14% 23% -29% -37% -51% 555% -1% 5% 5% -2% 0% 125% -13% ACC 700 Milestone Two Guidelines and Rubric The second milestone is a rough draft of the second artifact for your professional portfolio, a sample audit. The sample audit will consist of three main parts: the business risk analysis, the sample audit program, and the report of recommendations. This will be graded using the rubric at the end of this document and is an opportunity for you to organize your thoughts and receive feedback from your instructor for the final submission. Note that the submission guidelines for this milestone are less demanding than those for the final submission. Once you have submitted this milestone and received feedback from your instructor, it is up to you to incorporate this feedback and complete the artifact by meeting the submission requirements found in the Final Project Guidelines and Rubric document. Newham Company Information Newham Company is a publicly traded company operating in the \"personal product\" industry. Newham manufactures cosmetic and body-care products. These products are sold to large department chain stores, such as Target and Walmart, to be sold and distributed to the final consumer. Competitors include Revlon, Inc. (REV - NYSE) and Avon Products, Inc. (AVP - NYSE). Newham Company has experienced steady growth over the past several years. Recently, there has been a change in executive management, including the CEO and CFO. The change was sparked by questionable bonus payments that were paid to the executive management team based on the company's performance. In addition, a recent lawsuit has been filed based on claims that a new product was not properly advertised, leading many customers to experience allergic reactions. Sales and Accounts Receivable A sample of weekly sales invoices shall be analyzed from the sales report by product category. All sales are on account. Sales are classified into four product categories: cosmetics, skin care, fragrance, and personal care. Charges to customer accounts should be dated with the date of shipment. Sales invoices are prepared in batches on a daily basis using numbered sales invoices. Sales invoice numbers are automatically generated by the company's computer system. The accounts receivable clerk does not have appropriate computer rights to override the computer-generated invoice number. Upon preparing sales invoices, the accounts receivable clerk verifies that the first invoice number of the batch is consistent with the last invoice number of the previous batch. Inconsistencies or skipped sales invoice numbers are investigated and resolved before new sales invoices are prepared. The items shipped are compared to the items billed for proper quantity, price, and other sales order terms. The accounting department supervisor compares and reconciles a copy of the daily sales invoice batch report to the daily accounts posting report indicating the individual accounts. The daily account posting report is prepared and sent by the accounts receivable department. Discrepancies are investigated and resolved to help assure that the customer subsidiary accounts are posted for the same total amount posted to the control account. At the end of each month, the total of the trial balance of customer account balances (prepared by the accounts receivable department) are reconciled to the general ledger control account by the accounting department supervisor. Sales invoice batches are dated with the date of shipment, and totals of each batches are accumulated each month and recorded in the accounts receivable control and sales revenue accounts. The accounting department supervisor approves all monthly summary entries before posting to the general ledger. The controller approves all cash refunds and allowance credit memos for sales returns, after initiation by customer service. Cash Management The monthly bank statements are mailed to the controller's office. Duplicate deposit slips are retained and used when bank deposits are made, the cash receipts journal listing, and the cash disbursements listing to reconcile the general bank accounts. The payroll bank account is also reconciled, utilizing the payroll register retained by the controller's office. The assistant controller oversees all cash management and activity, including the performance of the bank account reconciliation for each bank account held by the company. The assistant controller compares the cash receipts journal and daily deposit records with the bank deposits and duplicate deposit slips during the bank account reconciliation. Internal auditors will randomly review the bank account reconciliations. Cash Receipts and Accounts Receivable Processing All cash receipts from customers related to sales are credited to accounts receivable individual and control accounts. Cash receipts are received by mail and opened by the office secretary. The office secretary prepares the cash receipt listing and daily deposit. A copy of the cash receipt listing and duplicate deposit slip is sent to the controller's office. Another copy of the cash receipt listing and the remittance advice are sent to the accounts receivable clerk for posting. The accounts receivable department posts credits to individual customer accounts, dating the entries with the date of the remittance advice and cash receipt listing received. Statements of accounts receivable balances are mailed to customers each month by the accounts receivable accounting department. Customers' reports of disputes or differences shall be handled by customer service. Cash Disbursements All disbursements are made by check, signed by the controller. Artifact Two: Sample Audit Program Your second portfolio artifact will be the professional audit program based on PCAOB audit standards that you create for Newham, an influential client at S.N.H.U, LLC. Make sure to incorporate the feedback you receive from your instructor while developing this audit program. The following sections should be included: Business Risk Analysis: Identifying risk in an organization and the environment in which it operates is the first step in approaching a potential audit and designing an effective audit program. To analyze business risk, you must: o o o o Gain an understanding of Newham Investigate the industry in which Newham operates Analyze and assess the risk, including fraud, involved in the company and industry Identify the relevant PCAOB audit standards and address their relevance to the Newham audit risk assessment Sample Audit Program: An audit program involves compiling a list (program) of procedures for the auditors to perform in order to obtain evidence and reasonable assurance that internal controls are operating properly and thus producing accurate financial statements. To compile a sample audit program, you have been provided with tests of control in revenue and inventory. You must identify the relevant PCAOB audit standards and address their relevance to the Newham audit program. Include other elements as applicable to Newham. Report of Recommendations: Based on an auditor's experiences and knowledge of accounting, finance, and common errors or pitfalls, it is common for an auditor to provide recommendations. The sample audit program addressed here is merely a small sample, not a comprehensive program. Thus, recommendations for further risk analysis, sample methods, and other concerns should be offered. In your report of recommendations to the head of the new audit team, include the following sections: o o o o Explanation of findings in the risk analysis Sarbanes-Oxley concerns or requirements Recommendations on appropriate sampling methods Recommendations for preparation and success in the external audit Guidelines for Submission: Your paper must be submitted as a two- to three-page Microsoft Word document with double spacing, 12-point Times New Roman font, one-inch margins, and at least three sources cited in APA format. Round all answers up to the nearest dollar value in any calculations. Note that this milestone is a rough draft and the submission guidelines are different for the final project. The final paper will be four to five pages in length with at least seven sources. Refer to the submission guidelines in the Final Project Guidelines and Rubric document. Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more information, review these instructions. Critical Elements Business Risk Analysis Sample Audit Program Report of Recommendations Articulation of Response Proficient (100%) Identifies risk in the organization and the environment in which it operates; clearly shows an understanding of Newham and the industry; assesses risk and identifies any relevant PCAOB audit standards Identifies the relevant PCAOB audit standards and addresses their relevance to the Newham audit program Provides recommendations as to explanation of findings, Sarbanes-Oxley concerns, appropriate sampling methods, and the external audit Submission has no major errors related to citations, grammar, spelling, syntax, or organization Not Proficient (0%) Does not identify risk in the organization or the environment in which it operates; does not show an understanding of Newham or the industry; does not assess risk or identify any relevant PCAOB audit standards Does not identify the relevant PCAOB audit standards or address their relevance to the Newham audit program Does not provide recommendations as to explanation of findings, Sarbanes-Oxley concerns, appropriate sampling methods, and the external audit Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas Earned Total Value 30 30 30 10 100%