Olean's Finest Health Care

Audit Memo

$\frac{12}{31}\frac{?}{22}$

$1$ The Company relies on the its auditor to calculate its provision for depreciation. Using the straight$-$line method, depreciation on assets that existed as of the end of the prior year was $$7,535.$

$2$ The Company book$-$keeper does not understand all the rules of accrual$-$basis accounting. As such, she books fixed asset additions to office supply expense. A review of the general ledger detail revealed the following items. The Company's capitalization policy# is $$1,000$ and it uses the straight$-$lined method half$-$year convention$+$ for recording depreciation.

$\backslash$table$[[$Item$,$Acquired,,Amount,Useful life$],[$Kitchen equipment,$\frac{6}{30}\frac{?}{22},$$$,6,200\mathrm{.}00,5$ years$],[$Computer$,\frac{6}{30}\frac{?}{22},$$$,800\mathrm{.}00,3$ years$],[$Other equipment,$\frac{6}{30}\frac{?}{22},$$$,2,263\mathrm{.}00,5$ years$]]$

A capitalization policy dictates a threshold for which purchases of long$-$term assets are recorded as P $&$E$ and depreciated. Amounts below the threshold are expensed as incurred, even if they have a long$-$term useful life.

$3$ Another error that the book$-$keeper always makes is to record pre$-$payments of insurance directly to expense. On October $1,$ the Company booked the payment of its annual liability insurance premium in the amount of $$12,000.$

$4$ The Company received a $$5,500$ deposit of grant proceeds that was originally recorded as a debit to cash and credit to grant revenue on December $15.$ This grant will assist the Organization in providing charity$-$care in the subsequent year. $($Hint this receipt is unearned as of $1231)$

$5$ To test the completeness of accounts payable recorded by the client, the auditor reviewed a listing of checks written subsequent to $\frac{12}{31}$ in excess of $|S{|}^{**}$ of $$3,000.$ None of these amounts have been accrued and were recorded as expenses when paid.

$($Hint in your AEE, accrue only those litems that meet the criteria for expense recogrition$)$

$\backslash$table$[[$Item$/$Amount$,$Check Date,Involce Date,Determination$],[$Rent for $1$ st $4$ months of $\frac{2023}{\text{\$}}3000,\frac{1}{6}\frac{?}{23},\frac{1}{1}\frac{?}{23},],[$Auditor fees $\frac{?}{?}$$$5,400,\frac{1}{13}\frac{?}{23},\frac{10}{1}\frac{?}{22},],[$Brochures $\frac{?}{?}$$$500,\frac{1}{20}\frac{?}{23},\frac{1}{6}\frac{?}{23},],[$T&E$^$ reimbursement $\frac{?}{?}$$$1,300,\frac{1}{20}\frac{?}{23},\frac{12}{15}\frac{?}{22},]]$

$|S|=$ Individual Significant Items. Auditors calculate a threshold for materiality purposes when searching for errors that may need adjusting. Amounts $>|SI|$ that are discovered to be in error require adjustment; the conclusion on amounts

complete the adjusting entries: