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Need help with the Audit Program Assignment. Prepaid Assets [ASSIGNMENT] 1 Prepaid Advertising Advertising in various publications and other media; contracted for 6 months on
Need help with the Audit Program Assignment.
Prepaid Assets [ASSIGNMENT]
- 1 Prepaid Advertising Advertising in various publications and other media; contracted for 6 months on September 1, 2014, totaling $30,636,000. Payment was made on September 1, 2014.
- 2 Other prepaid expenses comprise of various insurance policies that were paid in full during the week before the start of the policy period: a General Liability Insurance - Policy from March 1, 2014 through March 1, 2015. Premium $24,000,000. b Auto Insurance - Policy from September 1, 2014 through September 1, 2015. Premium $652,500. c Buidling Insurance - Policy from October 1, 2014 through October 1, 2015. Premium $1,336,000.
Assumptions:
- 1 Assume all insurance policies and advertising contracts have been examined by us (the auditors) with no exceptions.
- 2 Assume no reportable conditions were noted.
- 3 The current year amortized/expensed portion of Prepaid Assets has been traced to the trial balance expense accounts for both advertising expense and insurance expense.
- 4 For audit program step 1c, we have confirmed that no retroactive adjustments/premiums exist.
Required:
Prepare a workpaper for the above prepaid assets, recalculating prepaid balances recorded in the Company's Trial Balance (as noted in the Leadsheet). Assume all insurance policies and advertising contracts have been examined by us (the auditors) with no exceptions.
Fill out the Audit Program for Prepaid Assets. Supporting documents are attached:
EARTHWEAR CLOTHIERS Leadsheet: G - Prepaids and Deferred Expenses December 31, 2014 (In thousands) $11,458 2014 Unadjusted Balance $10,212 Other prepaid expenses $6,315 $5,435 $5,435 Deferred income tax benefits $7,132 $10,338 $10,338 $24,905 $25,984 Account Name Prepaid advertising Total 2013 Adjusted Balance AJE 2014 Adjusted Balance $10,212 RJE $0 $0 $25,984 Tolerable Error 200K W/P REF BY EarthWear Clothiers Other Prepaid Assets December 31, 2014 MANAGEMENT'S ASSERTIONS AND AUDIT OBJECTIVES Assertions Objectives Existence, Completeness, Rights, and Valuation. Prepaids and other assets represent a complete listing of costs of the company's that are allocable to future periods and that can reasonably be expected to be realized through future operations or otherwise. Valuation and Allocation. Prepaids and other assets are properly amortized or written off on an acceptable basis consistent with that used in prior periods. Any permanent impairment of balances is recognized by write downs charged to operations. Allocation, Presentation and Disclosure. Prepaids and other assets, and their related amortizations or write downs, are properly described and classified. The amortization policy and estimated life of intangible assets such as goodwill, patents, trademarks, copyrights, etc. are disclosed, as are any restrictions, pledges, or liens against prepaid and other assets. AUDIT ASSURANCE DECISION MODEL Internal Controls Assertions Analytical Procedures Substantive Procedures R-Factor Existence Rights Obligations Completeness Valuation Presentation and Disclosure AUDIT PROCEDURES 1. W/P REF BY Obtain or prepare a detailed analysis of prepaid insurance balances. a.) Determine the clerical accuracy of the client's schedule prepared for prepaid insurance. b.) Select the largest individual insurance premium and policy and determine the propriety of the insurance coverage identified on the schedule. c.) Consider obtaining confirmation of the retroactive adjustments and premiums resulting from forms of coverage such as worker's compensation, etc. (only if individually material.) d.) Determine, by scanning the schedule, the overall reasonableness of prepaid insurance balances. e.) Determine, by review of the insurance coverage in force, whether significant insurable risks have been considered. Comment: Assertions: 2. Existence Valuation Rights Obligations Presentation / Disclosure Completeness Occurance Allocation Administrative For other assets, determine the proper description and classification between the current and noncurrent assets. Vouch other asset to supporting documents as deemed necessary. Recalculate current year amortization as deemed necessary. Comment: Assertions: 3. Existence Valuation Rights Obligations Presentation / Disclosure Completeness Occurance Allocation Administrative Consider whether the results of audit procedures indicate reportable conditions in internal control and, if so, add to the memo of points for the communication of reportable conditions. Prepare a management letter comment for identified reportable conditions and management letter comments. Comment: Assertions: 4. Existence Valuation Rights Obligations Presentation / Disclosure Completeness Occurance Allocation Administrative Conclude: Prepaids Audit Program\\ program G/PROGStep by Step Solution
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