Ombrea Corporation 2016 Financial Statement Audit
Ombrea Corporation (OC) is a small firm that sells electronic parts and supplies to customers within the United States.They have revenues of just over $1.5 Million.Ombrea Corporation went public two years ago.At that time they hired a national audit firm to audit their financial statements.Last year they changed to a smaller regional firm to audit their financial statements but was not happy with way the audit was conducted.In addition, OC hired a new Controller at the end of 2016 after they discovered that the prior controller misrepresented his knowledge of SEC registered companies.This is the first year your firm has audited Ombrea Corporation.
As part of the engagement team you are required to help plan the audit.Planning is a very important activity in an audit.To properly plan the audit you need to gain an understanding of the accounts so that you can determine the adequacy and sufficiency of the audit evidence that must be examined and allocate sufficient staff time. You have been tasked with helping in the planning of the sales and collection cycle (other team members are also helping with the planning of the sales and collection cycle).Your senior has provided you with the following information.
Three customers are related to either the Chief Executive Officer or the Chief Financial Officer:Accel Enterprises; Gaston Corporation; Kidder Enterprises.
Ombrea Corporation 2016 Financial Statement Audit Ombrea Corporation (0C) is a small firm that sells electronic parts and supplies to customers within the United States. They have revenues ofjust over $1.5 Million. Ombrea Corporation went public two years ago. At that time they hired a nlational audit rm to audit their financial statements. Last year they changed to a smaller regional rm to audit their financial statements but was not happy with way the audit was conducted. In addition, 0C hired a new Controller at the end of 2016 after they discovered that the prior controller misrepresented his knowledge of SEC registered companies. This is the first year your firm has audited Ombrea Corporation. As part of the engagement team you are required to help plan the audit. Planning is a very important activity in an audit. To properly plan the audit you need to gain an understanding of the accounts so that you can determine the adequacy and sufficiency of the audit evidence that must be examined and allocate sufficient staff time. You have been tasked with helping in the planning of the sales and collection cycle (other team members are also helping with the planning of the sales and collection cycle). Your senior has provided you with the following information. Three customers are related to either the Chief Executive Officer or the Chief Financial Officer: Accel Enterprises; Gaston Corporation; Kidder Enterprises. The IT department has provided the following record totals for the two files the client provided. Customer List.txt Sales Transactions.xls 1349 The Accounting department has provided the following information: Beginning Ending Transaction Type Document No. Document No. Balance Sales Invoices (IN) 87911 88723 $1,525,763.83 Payments from 64260 64675 860,466.09 Customers (PM) Audit Objectives. Objective 1 Verify that transactions are properly classified in the sales transaction le (only 4 types of transactions; sales invoices are all positive numbers, payments, credit memos and write-offs are negative numbers), record number agrees with information provided by the IT department, beginning and ending document numbers, and balance agree with the information provided by the Accounting department (classification). Objective 2 Agree the 12/31/2016 net sales to the general ledger (accuracy). Objective 3 Verify that there are no missing transactions in the sales transactions le (completeness). Objective 4 Verify that there are no duplicate transactions in the sales transactions le (occurrence). Objective 5 Identify related party transactions in the sales transaction file. Objective 6 Agree the 12/31/16 balance of accounts receivable to the general ledger (valuation and allocation). Objective 7 Verify sales are only made to approved customers (authorization). Objective 3 Identify customers with total sales over $5,000 who have a large percentage of returns (ratio of total sales returns to total sales). Objective Report Requirement 1-4&6-8 Discuss your findings in your report. Include the following in your discussion: The findings from your testing. Do you believe these findings warrant further testing? If yes what procedures would you perform and what documentation would you examine (state specific evidence you would want to collect)? How would these findings impact the sufficiency and appropriateness of your evidence? Do you believe these findings increase the risk of material misstatements, why or why not? Discuss your findings in your report. Include in your discussion the following: What procedures would you perform to verify that these transactions were conducted as normal business transactions what documentation would you examine (state specific evidence you would want to collect)? How would these findings impact the sufficiency and appropriateness of your evidence? Do you believe these transactions increase the risk of material misstatements, why or why not
