Poly Distributors Ltd. December 31, 2019 PLANNING MEMORANDUM 1. Analytic Review Procedures (ARP) Per the horizontal analysis on WP A, the following unexpected or unusual changes occurred in 2019 accounts (circle increase or decrease): Account _% (Increase/decrease) Account _%(Increase/decrease) Account % (Increase/decrease! Recommendation: Therefore, potential misstatements could exist in three accounts: Expanded/Reduced/Normal (circle choice) tests of controls and if necessary more/lessormal (circle choice) substantive tests should be planned in these areas. 2. Risk Assessment i) Inherent Risk Most of the client staff and management are well educated, trained, and experienced they enjoy a fair compensation package and are well motivated. The only exception is the accounting technician performing the Sales Journal function who has less than one year experience. Overall IR is ii) Control Risk (Initial Lead Sheet AdC) Internal Controls should be assessed based on: (1) Cash WP Add-1 (2) Revenue/Receivables WP AdC-1 (3) Purchases/Payable WP AdC-2 Based on these initial descriptions CR appears Low/High (circle choice). Recommend that tests of controls be performed/omitted circle choice). ii) Detection Risk Should be set at a high/low (circle choice) level and more/less (circle choice) substantive testing is done in the following areas: (To be determined after Control Testing is performed.) Balance Sheet December 31, 2019 $ 83,000 Assets: Current assets: Cash........ Accounts receivable. Less: Allowance for Doubtful... Merchandise Inventory.. Prepaid expenses.. Total current assets $112,000 3,000 109,000 213,000 11,000 $416,000 $28,000 Plant and equipment: Office equipment.... Less: Accumulated depreciation... Store equipment........ Less: Accumulated depreciation..... Total plant and equipment.. Total Assets $42,000 14,000 $330,000 63.000 267.000 295.000 $711,000 $80,000 5,000 $85,000 80,000 Liabilities: Current liabilities: Accounts payable. Salaries payable Total Current liabilities...... Long term Liabilities: Bank Note Payable (Store Equipment)...... Total Liabilities Equity: Common shares, unlimited authorized, 8,000 issued and Outstanding........ Retained earnings Total liabilities and equity. $165,000 $41,200 504,800 545.000 $ 711.000 Income Statement For the Year Ended December 31, 2019 $3,110,000 $ 43,000 20,400 63,400 $3,046,600 2,332 800 $ 713,800 $187,000 115,500 45,000 36,000 33,000 9,200 3,000 $428,700 Sales Less: Sales discounts. Sales returns and allowances. Net sales. Cost of goods sold. Gross profit from sales Operating expenses Selling expenses: Sales salaries expense Advertising expense... Rent expense: selling space Utilities expense: selling space.. Depreciation expense, store equipment Store supplies expense Bad debt expense..... Total selling expenses. General and administrative expenses: Office salaries expense.... Utilities expense office space Office supplies expense Rent expense, office space Maintenance Expense, vehicles.. Depreciation expense, office equipment. Insurance expense.... Total general and administrative expenses Total operating expenses Income from operations....... Other revenue and expenses: Rent revenue.. Interest expense. Profit ...... $156,000 12,000 2.000 9,000 4,000 7,000 6,000 195.000 524 700 $ 89,100 $26,000 3,600 22.400 $ 111.500 3. Materiality Prior year materiality was set at $3,800. Primary Financial Statement Users are: PDL Shareholders, City Bank of Moose Jaw Financial Statement user expectations: PDL is expected to have profitable operations with reasonable growth and low business risk. 2019 current audit materiality is set at (Do Calculation on WP AdB-1) 4. Planning Factors i) Tolerable Deviation Rate - TDR for all controls is set at 7% ii) AFDA Industry Average is 2.3% Prior year AFDA was % of accounts receivable. iii) Upper Error Limit - UELs will be determined using the text book tables for 90% confidence 5. Time Budget (After Year End) Specifically for U. Student (you): Preliminary Procedures Tests of controls of Revenue/Rec Substantive Tests of Acct Receivable Substantive Tests of Cash Tests of controls of Purchases/Payables Substantive tests of Acct Payable 2 hours 3 4 4 3 NOTE: It is STRONGLY suggested that before starting the audit of each section you review the related text and content. initials Materiality Assessment 1. Qualitative Factors a) Identify the specific users of the financial statements for this engagement Comments b) Identify what expectations the users may have for the financial statements for this engagement c) Identify any possible situations or misstatements that would affect a user now or at some future point, regardless of the materiality level. (eg Consider environmental matters policies, statues, safety issues, etc.) 2. Quantitative Factors a) Planning Data This Year Actual Last Year Assets Liabilities Equity Sales/Revenue Gross Profit Expenses Income before tax Previous materiality b) Normalized pre-tax (net) income This Year Actual Last Year Estimated pre-tax income $ Date & Initials 3. Materiality Considerations Profit-oriented enterprises Factor Applied Possible Materiality Comments $ Measurement Base Normalized pre-tax income Assets Equity Revenue Gross profit Other s $ $ . Materiality guidelines Normalized pre-tax income Assets Equity Revenue Gross profit 5-10% -1% 7-596 -1% %-5% These materiality factors are provided as guidelines only and should be used as an aid in the development of your professional judgement. The materiality level should represent the largest amount of a misstatement or group of misstatements that would not, in your judgement, influence or change a decision based on the financial statements See CAS 320. paragraphs A3-A9 for more guidance, 4. Overall Materiality Assessment for Financial Statements as a whole Based on the anticipated financial statement amounts and on the other factors described above, overall materiality for this engagement is as follows: Misstatements below this threshoid, if not corrected, will be accumulated on the Possible Adjustments Sheet unless such misstatements are deemed trivial (below $ 1. Note: The auditor may designate an amount below which misstatements are deemed trivial and need not be accumulated because the auditor expects that the accumulation of such amounts clearly will not have a material effect on the financial statements. In so doing, the auditor considers the fact that the determination of materiality involves qualitative as well as quantitative considerations and that misstatements or a relatively small amount could nevertheless have a material effect on the financial statements. The summary of uncorrected misstatements included in or attached to the management representation letter need not include trivial misstatements. Index Ada Initials Date Poly Distributors Ltd. December 31, 2019 INTERNAL CONTROL ANALYSES 1. Cash Internal Controls See WP ADD-1 CR for Cash initial assessment is Low/High 2. Revenue Receivables Internal Controls See WP AdC-1 CR for Rev/Rec initial assessment is low/High 3. Purchases Payables Internal Controls See WP ADC-2 CR for Purch/Payables initial assessment is Low/High *(U. Student examine the control sheets or flowcharts indicated above and decide on whether controls look good - CR low or vice versa. Circle "Low" or "High". Note that ONE control weakness would not constitute CR as being high.) Above CR assessments must be recorded on the Planning Memo AdC1 POLY DISTRIBUTORS LTD - REVENUE AND RECEIVABLE FLOWCHART UPDATED. DEC 31, 2019 Index Inities & Date SALES TREASURER WAREHOUSE SHIPPING BILLING ACCOUNTING Start 50 1-3 PS1 PS #3 Pack slip SUZ PS 3 CO SD32 SD#2 Appr NO Ship goods Prep SO Pack Goods DEARCH Sales Sales lournal Price sale prepi Price Best VES PS N 1 SO 1.23 PS ry noted Note Appe Ship Doc 1 Cust SIN2 S1 SIN2 S103 PS3 SD 22 PS2 SD 2 SO Appr Pack Sip PS 23 by SD Cute NOTES So becomes the packing since approvede document serves 2 purposes All documents prenumbered and controlled > Different personnel segregated in each of above departments >> All personnel have good training and experience for their job requirements except si tech who has Open PO, & RRs are investigated every Friday (weekly > All personnel have good training and experience Notes Vi is assigned a sequential Voucher number here > All source documents are prenumbered and controlled (PR.PO,RR, VI) > Different personnel are segregated in each area above Index Ad D Poly Distributors Ltd. December 31, 2019 AUDIT PROGRAMS Audit programs for your portion of the audit are filed here. When you perform the audit procedures you may file these programs with your Lead Sheets and WP for convenience. Make sure you complete all the procedures in the program that apply to you some have already been done by other auditors, and you will see references to WPs if that work has been completed. Check with the audit manager if you are uncertain as to which tests you are responsible for AdD-1 Cash Controls test results and substantive tests to be performed AdD-2 Tests of Controls Revenues/Receivables AdD-3 Substantive Tests of Accounts Receivable AdD - 4 Tests of Controls Purchases/Payables AdD - 5 Substantive Tests of Accounts Payable FILE INDEX Ad D-1 AUDIT PROGRAM AUDITEE: Poly Distributors Ltd FINANCIAL STATEMENT PERIOD: December 31, 2019 ACCOUNT: Cash Balance Consider risk assessment findings: High Moderate Low Provide specific risk description of Audit fide documentation reference Moderata Low What fraud risk level has been assessed related to this account? le.g. theft of assets, unrecorded or fictitious transactions, inappropriate journal entries) No indicators of fraud have been noted by staff but cash is Vulnerable to Freud se niskis more than low See oweraris assesment at financial statement level What is the assessed risk level for this account at the financial statement level? (es., consider business risks, entity level control environment, risk assessment and monitoring, general IT control, management override, going-concern risks, related-party transactions High Low Moderate What is the assessed inherent risk level at the assertion level for Existence Completeness Ownership Valuation Presentation High Moderate Low if tests of key controls have been conducted, what is the assessed control risk? (Note: if no controls were tested control risk must be assessed as high Existence Completeness Ownership Valuation Presentation SO High Moderate Low Residual detection risk to be reduced by performing substantive procedures Existence Completeness Ownership Valuation Presentation Substantive audit program in response to assessed risks: Substantive audit procedures Timing Extent Working paper applicable) documentation reference 100% C [Of the procedures listed below, perform those considered necessary to provide sufficient appropriate evidence to address the assessed risks and reduce risk of material misstatement to acceptable vel 1 Prepare a "Lead Sheet" with a list of ali cash accounts current period balances. Tie current balances in to period and general ledger Agree prior balances to prior period audit file and financial statements if available 100% 100% 100N IOON TOON 100% 100 2. Obtain confirmations from all banks auditee has dealt with frequest from banks using standard bank confirmation form). 3 Review the bank confirmation for loans, collateral, or guarantees 4. Obtain auditee-prepared reconciliations of all bank accounts For each bank account, perform the following a. Trace the bank balance on the reconciliation to the bank confirmation b. Trace the reconciled book balance to the general ledsen c. Verity a sample of outstanding cheques and outstanding deposits to source documents. d. Recalculate the arithmetic on auditee prepared bank reconciliations e. Ensure all differences are explained by valued tining differences or bankerrors, or are adjusted by appropriate journal entries 5. Ask the auditee to request cut-off bank statements for a period after the financial statement datee.. two weeks of one months to be mailed directly to the audit farm; in a low tick audit, an account-detail repot directly from the auditee's online banking can be used a. Trace deposits in transit on the recondition to bank deposits early in the next period b. Teace outstanding cheques on the reconciliation to cheques cleared in the next period If any material outstanding cheques at period end have not cleared by the end of the audit field work, confirm the related disbursements with the payee 6. Enquire if any outstanding cheques have been prepared but not mailed at period end, verifying if these are materials should be reclassified as accounts payable 7 Ensure all cash is properly presented on the balance sheet 8. Ensure all required disclosures related to cash balances and banking terms are provided in the financial statement notes 100N 100% 100% NA 100% 100% Notes to F5 Review FILE INDEX: Ad D-2 AUDIT PROGRAM AUDITEE: Poly Distributors Ltd FINANCIAL STATEMENT PERUOD: December 31 2019 ACCOUNT: Revenue Transactions Tests of Controls Audit Program - Revenue Test of Controls audit procedures Timing Extent (it applicable) Working paper documentation reference AA 10 1 Twierdie YE YE ALYS 2. Select a sample of recorded sales invoices and examine for underlying a) shipping documents notation b) credit approval notation c) recalculation of Price Quantity arithmetic accuracy Select a sample of sales invoices and scan for missing sequence number Select a sample of shipping documents and scan for missing sequence number Calculate UEL and re-assess Control Risk for Revenue transactions Calculate potential material dollar Likely error. 200 ML 2. 3. 4. 5. TAYO SUYU Date: Prepared by: Dute: Reviewed by: FILE INDEX: Ad D-3 AUDIT PROGRAM AUDITEE: Paly Distributors Ltd FINANCIAL STATEMENT PERIOD: December 31, 2019 ACCOUNT Accounts and Notes Receivable Balonces Substantive audit program in response to assessed risks Substantive audit procedures Timing Extent applicable) Worldng paper documentation reference YE D YE YE YE YE (of the procedures listed below, perform those considered necessary to provide sufficient appropriate evidence to address the assessed risks and reduce risk of material misstatement to acceptable level) 1. Obtain an aged trial balance of individual customer accounts. Recalculate the total and trace to the general ledger control account 2. Send positive confirmations to all accounts over $5,000. Select a random sample of all remaining accounts for negative confirmation a. Investigate differences reported by customers b. Perform alternative procedures on accounts that do not respond to positive confirmation requests 1) Vouch cash receipts after the confirmation date that do not respond to positive confirmation requests 2) Vouch sales invoices and shipping documents 3. Evaluate the adequacy of the allowance for doubtful accounts. a. Calculate overdue amounts in the aged trial balance as a percentage of total accounts receivable, b. Compare the current-year allowance to the prior wear alowance based on percentage Calculate an allowance estimate using Industry average of 2.3% of balance of accounts receivable. Compare to current year. 4 Inspect or obtain confirmation of notes receivable. 5. Recalculate interest income and trace to the income account YE YE YE YE YO NA N/A NA Date: Prepared by: Date: Reviewed by: FILE INDEX: Ad D.4 AUDIT PROGRAM AUDITEE: Poly Distributors Ltd FINANCIAL STATEMENT PERIOD: December 31, 2019 ACCOUNT: Purchase/Payable Transactions Tests of Controls Audit Program - Purchases/Payables Test of Controls audit procedures Timing Extent (if applicable) Working paper documentation reference Blitar YE YF Intern Yerin 1. Select a sample of recorded Purchase Orders and examine for: a) Trace to RR for date (Greater than Po date) and Quantity b) Trace to VI for Date (Greater than Po date). Quantity, and Price c) Trace to PJ for PJ Date EQUAL to RR Date, Price 2. Select a sample of Purchase Orders and scan for missing sequence number 3. Select a sample of receiving report documents and scan for missing sequence number 4 Calculate UEL and re-assess Control Risk for Purchase transactions 5. Calculate potential material dollur Ukely error. H Yon 200 YEK ye Date: Prepared by Date: Reviewed by: FILE INDEX: Ad D-S AUDIT PROGRAM AUDITEE Poly Distributors Ltd FINANCIAL STATEMENT PERIOD: December 31, 2019 ACCOUNT: Accounts Puyable Balances Substantive audit program in response to assessed risks Substantive audit procedures Timing Extent of applicable) Working paper documentation reference (of the procedures listed below, perform those considered necessary to provide sufficient appropriate evidence to address the assessed risks and reduce risk of material misstatement to acceptable level.) 1. Obtain a trial balance of accounts payable as of yearend. Recalculate the total and trace to the A/P general ledger control account. b Review the trial balance for unusual items related-party payables or other items and follow up with client enquiries 2. Send positive contirmations to creditors with zer or unnaturally Smali balances. a. Investigate differences reported by creditors. YE YE YU AU YE NDA ter 3. Conduct a search for unrecorded liabilities by reconching a sample of suppliers' statements to accounts payable sub ledger accounts 4. Enquire about terms that justify classifying payables as long term instead of current 5. Obtain written management assertions about completeness of account payables, related-party payables and pledges of assets as collateral for liabilities YE Swed DR YEPC Del Date Prepared by: Date Reviewed by Poly Distributors Ltd... December 31, 2019 o Working Trial Balance index A Initials Date Manager Review Client Balances 2019 Lead Sheet 2018 ARP Account name Dr. Adjusting Entries Dr Cr CE Dr Audited Balances Dr % Change C D D E F G G G G H Cash Acets Receivable Allow For Cbt Accts Inventory Prepaid Expense Office Equipment Acc Depr. Off Equin Store Equip Acc Depr Store Eqp Accounts Payable Salaries Payable Bank Note Payable Common Shares Retained Earnings Sales Sales Discounts Sales Retn & Allow COGS Sales Salaries Exp Advertising Exp Rent Exp Selling Utility exp, store Depr Exp Stor Equip Store Supplies Exp Bad Debt Exp Office Salaries Exp K 256 12% 2x 2% 2% 05 100% 106 1106 11% 1% 0% 0% -1% 10% 296 4% 13% 3N 4% 3% 4% 10% 36 83,000 81,180 112,000 99,680 3,000 2.940 213,000 207,900 11,000 10,830 42,000 42,000 14,000 7,000 330,000 300,000 63,000 30,000 80,000 72,000 5,000 4,950 80,000 80,000 41,200 41,200 393,300 398,500 3,110,000 2.821,100 43,000 42.140 20,400 19,600 2,332,800 2,073,600 187,000 181,300 115,500 110,740 45,000 43,650 36,000 34,560 33,000 30,000 9,200 8.910 3,000 2.940 156,000 151,470 . AA BA CC DD EE FF GG HH 2% KK LL MM 3% A1 Index Initials Date Audited Balances Dr Cr SI ARP % Change Account name Utility exp, office Office Supplies exp Maint/Rep Vehicle Rent exp. Office Deprec Exp. Office Insurance Exp Rent Revenue Int. Expense Lead Sheet HH NN 00 GG 11 PP Client Balances 2019 2018 Adjusting Entries Dr. C. Dr Dr Cr 12,000 11,520 2,000 1,980 4,000 3,920 9,000 8,730 7,000 7,000 6,000 5,700 26,000 25,200 3,600 3,540 1% 2% 3% 0% 5% 00 RR 2% Sub total 3,815,500 3,815,500 3,482,890 3.482,890 105.000 Net Income 111,500 (Revenues less expenses) Dividends of $110,200 were paid in the year 2019. Net Income not closed to RE balance yet. B Poly Distributors Ltd Proposed Audit Adjusting Entries December 31, 2019 Index Initials Date Date Account Description WP Ref Dr Cr Poly Distributors Ltd. December 31, 2019 PLANNING MEMORANDUM 1. Analytic Review Procedures (ARP) Per the horizontal analysis on WP A, the following unexpected or unusual changes occurred in 2019 accounts (circle increase or decrease): Account _% (Increase/decrease) Account _%(Increase/decrease) Account % (Increase/decrease! Recommendation: Therefore, potential misstatements could exist in three accounts: Expanded/Reduced/Normal (circle choice) tests of controls and if necessary more/lessormal (circle choice) substantive tests should be planned in these areas. 2. Risk Assessment i) Inherent Risk Most of the client staff and management are well educated, trained, and experienced they enjoy a fair compensation package and are well motivated. The only exception is the accounting technician performing the Sales Journal function who has less than one year experience. Overall IR is ii) Control Risk (Initial Lead Sheet AdC) Internal Controls should be assessed based on: (1) Cash WP Add-1 (2) Revenue/Receivables WP AdC-1 (3) Purchases/Payable WP AdC-2 Based on these initial descriptions CR appears Low/High (circle choice). Recommend that tests of controls be performed/omitted circle choice). ii) Detection Risk Should be set at a high/low (circle choice) level and more/less (circle choice) substantive testing is done in the following areas: (To be determined after Control Testing is performed.) Balance Sheet December 31, 2019 $ 83,000 Assets: Current assets: Cash........ Accounts receivable. Less: Allowance for Doubtful... Merchandise Inventory.. Prepaid expenses.. Total current assets $112,000 3,000 109,000 213,000 11,000 $416,000 $28,000 Plant and equipment: Office equipment.... Less: Accumulated depreciation... Store equipment........ Less: Accumulated depreciation..... Total plant and equipment.. Total Assets $42,000 14,000 $330,000 63.000 267.000 295.000 $711,000 $80,000 5,000 $85,000 80,000 Liabilities: Current liabilities: Accounts payable. Salaries payable Total Current liabilities...... Long term Liabilities: Bank Note Payable (Store Equipment)...... Total Liabilities Equity: Common shares, unlimited authorized, 8,000 issued and Outstanding........ Retained earnings Total liabilities and equity. $165,000 $41,200 504,800 545.000 $ 711.000 Income Statement For the Year Ended December 31, 2019 $3,110,000 $ 43,000 20,400 63,400 $3,046,600 2,332 800 $ 713,800 $187,000 115,500 45,000 36,000 33,000 9,200 3,000 $428,700 Sales Less: Sales discounts. Sales returns and allowances. Net sales. Cost of goods sold. Gross profit from sales Operating expenses Selling expenses: Sales salaries expense Advertising expense... Rent expense: selling space Utilities expense: selling space.. Depreciation expense, store equipment Store supplies expense Bad debt expense..... Total selling expenses. General and administrative expenses: Office salaries expense.... Utilities expense office space Office supplies expense Rent expense, office space Maintenance Expense, vehicles.. Depreciation expense, office equipment. Insurance expense.... Total general and administrative expenses Total operating expenses Income from operations....... Other revenue and expenses: Rent revenue.. Interest expense. Profit ...... $156,000 12,000 2.000 9,000 4,000 7,000 6,000 195.000 524 700 $ 89,100 $26,000 3,600 22.400 $ 111.500 3. Materiality Prior year materiality was set at $3,800. Primary Financial Statement Users are: PDL Shareholders, City Bank of Moose Jaw Financial Statement user expectations: PDL is expected to have profitable operations with reasonable growth and low business risk. 2019 current audit materiality is set at (Do Calculation on WP AdB-1) 4. Planning Factors i) Tolerable Deviation Rate - TDR for all controls is set at 7% ii) AFDA Industry Average is 2.3% Prior year AFDA was % of accounts receivable. iii) Upper Error Limit - UELs will be determined using the text book tables for 90% confidence 5. Time Budget (After Year End) Specifically for U. Student (you): Preliminary Procedures Tests of controls of Revenue/Rec Substantive Tests of Acct Receivable Substantive Tests of Cash Tests of controls of Purchases/Payables Substantive tests of Acct Payable 2 hours 3 4 4 3 NOTE: It is STRONGLY suggested that before starting the audit of each section you review the related text and content. initials Materiality Assessment 1. Qualitative Factors a) Identify the specific users of the financial statements for this engagement Comments b) Identify what expectations the users may have for the financial statements for this engagement c) Identify any possible situations or misstatements that would affect a user now or at some future point, regardless of the materiality level. (eg Consider environmental matters policies, statues, safety issues, etc.) 2. Quantitative Factors a) Planning Data This Year Actual Last Year Assets Liabilities Equity Sales/Revenue Gross Profit Expenses Income before tax Previous materiality b) Normalized pre-tax (net) income This Year Actual Last Year Estimated pre-tax income $ Date & Initials 3. Materiality Considerations Profit-oriented enterprises Factor Applied Possible Materiality Comments $ Measurement Base Normalized pre-tax income Assets Equity Revenue Gross profit Other s $ $ . Materiality guidelines Normalized pre-tax income Assets Equity Revenue Gross profit 5-10% -1% 7-596 -1% %-5% These materiality factors are provided as guidelines only and should be used as an aid in the development of your professional judgement. The materiality level should represent the largest amount of a misstatement or group of misstatements that would not, in your judgement, influence or change a decision based on the financial statements See CAS 320. paragraphs A3-A9 for more guidance, 4. Overall Materiality Assessment for Financial Statements as a whole Based on the anticipated financial statement amounts and on the other factors described above, overall materiality for this engagement is as follows: Misstatements below this threshoid, if not corrected, will be accumulated on the Possible Adjustments Sheet unless such misstatements are deemed trivial (below $ 1. Note: The auditor may designate an amount below which misstatements are deemed trivial and need not be accumulated because the auditor expects that the accumulation of such amounts clearly will not have a material effect on the financial statements. In so doing, the auditor considers the fact that the determination of materiality involves qualitative as well as quantitative considerations and that misstatements or a relatively small amount could nevertheless have a material effect on the financial statements. The summary of uncorrected misstatements included in or attached to the management representation letter need not include trivial misstatements. Index Ada Initials Date Poly Distributors Ltd. December 31, 2019 INTERNAL CONTROL ANALYSES 1. Cash Internal Controls See WP ADD-1 CR for Cash initial assessment is Low/High 2. Revenue Receivables Internal Controls See WP AdC-1 CR for Rev/Rec initial assessment is low/High 3. Purchases Payables Internal Controls See WP ADC-2 CR for Purch/Payables initial assessment is Low/High *(U. Student examine the control sheets or flowcharts indicated above and decide on whether controls look good - CR low or vice versa. Circle "Low" or "High". Note that ONE control weakness would not constitute CR as being high.) Above CR assessments must be recorded on the Planning Memo AdC1 POLY DISTRIBUTORS LTD - REVENUE AND RECEIVABLE FLOWCHART UPDATED. DEC 31, 2019 Index Inities & Date SALES TREASURER WAREHOUSE SHIPPING BILLING ACCOUNTING Start 50 1-3 PS1 PS #3 Pack slip SUZ PS 3 CO SD32 SD#2 Appr NO Ship goods Prep SO Pack Goods DEARCH Sales Sales lournal Price sale prepi Price Best VES PS N 1 SO 1.23 PS ry noted Note Appe Ship Doc 1 Cust SIN2 S1 SIN2 S103 PS3 SD 22 PS2 SD 2 SO Appr Pack Sip PS 23 by SD Cute NOTES So becomes the packing since approvede document serves 2 purposes All documents prenumbered and controlled > Different personnel segregated in each of above departments >> All personnel have good training and experience for their job requirements except si tech who has Open PO, & RRs are investigated every Friday (weekly > All personnel have good training and experience Notes Vi is assigned a sequential Voucher number here > All source documents are prenumbered and controlled (PR.PO,RR, VI) > Different personnel are segregated in each area above Index Ad D Poly Distributors Ltd. December 31, 2019 AUDIT PROGRAMS Audit programs for your portion of the audit are filed here. When you perform the audit procedures you may file these programs with your Lead Sheets and WP for convenience. Make sure you complete all the procedures in the program that apply to you some have already been done by other auditors, and you will see references to WPs if that work has been completed. Check with the audit manager if you are uncertain as to which tests you are responsible for AdD-1 Cash Controls test results and substantive tests to be performed AdD-2 Tests of Controls Revenues/Receivables AdD-3 Substantive Tests of Accounts Receivable AdD - 4 Tests of Controls Purchases/Payables AdD - 5 Substantive Tests of Accounts Payable FILE INDEX Ad D-1 AUDIT PROGRAM AUDITEE: Poly Distributors Ltd FINANCIAL STATEMENT PERIOD: December 31, 2019 ACCOUNT: Cash Balance Consider risk assessment findings: High Moderate Low Provide specific risk description of Audit fide documentation reference Moderata Low What fraud risk level has been assessed related to this account? le.g. theft of assets, unrecorded or fictitious transactions, inappropriate journal entries) No indicators of fraud have been noted by staff but cash is Vulnerable to Freud se niskis more than low See oweraris assesment at financial statement level What is the assessed risk level for this account at the financial statement level? (es., consider business risks, entity level control environment, risk assessment and monitoring, general IT control, management override, going-concern risks, related-party transactions High Low Moderate What is the assessed inherent risk level at the assertion level for Existence Completeness Ownership Valuation Presentation High Moderate Low if tests of key controls have been conducted, what is the assessed control risk? (Note: if no controls were tested control risk must be assessed as high Existence Completeness Ownership Valuation Presentation SO High Moderate Low Residual detection risk to be reduced by performing substantive procedures Existence Completeness Ownership Valuation Presentation Substantive audit program in response to assessed risks: Substantive audit procedures Timing Extent Working paper applicable) documentation reference 100% C [Of the procedures listed below, perform those considered necessary to provide sufficient appropriate evidence to address the assessed risks and reduce risk of material misstatement to acceptable vel 1 Prepare a "Lead Sheet" with a list of ali cash accounts current period balances. Tie current balances in to period and general ledger Agree prior balances to prior period audit file and financial statements if available 100% 100% 100N IOON TOON 100% 100 2. Obtain confirmations from all banks auditee has dealt with frequest from banks using standard bank confirmation form). 3 Review the bank confirmation for loans, collateral, or guarantees 4. Obtain auditee-prepared reconciliations of all bank accounts For each bank account, perform the following a. Trace the bank balance on the reconciliation to the bank confirmation b. Trace the reconciled book balance to the general ledsen c. Verity a sample of outstanding cheques and outstanding deposits to source documents. d. Recalculate the arithmetic on auditee prepared bank reconciliations e. Ensure all differences are explained by valued tining differences or bankerrors, or are adjusted by appropriate journal entries 5. Ask the auditee to request cut-off bank statements for a period after the financial statement datee.. two weeks of one months to be mailed directly to the audit farm; in a low tick audit, an account-detail repot directly from the auditee's online banking can be used a. Trace deposits in transit on the recondition to bank deposits early in the next period b. Teace outstanding cheques on the reconciliation to cheques cleared in the next period If any material outstanding cheques at period end have not cleared by the end of the audit field work, confirm the related disbursements with the payee 6. Enquire if any outstanding cheques have been prepared but not mailed at period end, verifying if these are materials should be reclassified as accounts payable 7 Ensure all cash is properly presented on the balance sheet 8. Ensure all required disclosures related to cash balances and banking terms are provided in the financial statement notes 100N 100% 100% NA 100% 100% Notes to F5 Review FILE INDEX: Ad D-2 AUDIT PROGRAM AUDITEE: Poly Distributors Ltd FINANCIAL STATEMENT PERUOD: December 31 2019 ACCOUNT: Revenue Transactions Tests of Controls Audit Program - Revenue Test of Controls audit procedures Timing Extent (it applicable) Working paper documentation reference AA 10 1 Twierdie YE YE ALYS 2. Select a sample of recorded sales invoices and examine for underlying a) shipping documents notation b) credit approval notation c) recalculation of Price Quantity arithmetic accuracy Select a sample of sales invoices and scan for missing sequence number Select a sample of shipping documents and scan for missing sequence number Calculate UEL and re-assess Control Risk for Revenue transactions Calculate potential material dollar Likely error. 200 ML 2. 3. 4. 5. TAYO SUYU Date: Prepared by: Dute: Reviewed by: FILE INDEX: Ad D-3 AUDIT PROGRAM AUDITEE: Paly Distributors Ltd FINANCIAL STATEMENT PERIOD: December 31, 2019 ACCOUNT Accounts and Notes Receivable Balonces Substantive audit program in response to assessed risks Substantive audit procedures Timing Extent applicable) Worldng paper documentation reference YE D YE YE YE YE (of the procedures listed below, perform those considered necessary to provide sufficient appropriate evidence to address the assessed risks and reduce risk of material misstatement to acceptable level) 1. Obtain an aged trial balance of individual customer accounts. Recalculate the total and trace to the general ledger control account 2. Send positive confirmations to all accounts over $5,000. Select a random sample of all remaining accounts for negative confirmation a. Investigate differences reported by customers b. Perform alternative procedures on accounts that do not respond to positive confirmation requests 1) Vouch cash receipts after the confirmation date that do not respond to positive confirmation requests 2) Vouch sales invoices and shipping documents 3. Evaluate the adequacy of the allowance for doubtful accounts. a. Calculate overdue amounts in the aged trial balance as a percentage of total accounts receivable, b. Compare the current-year allowance to the prior wear alowance based on percentage Calculate an allowance estimate using Industry average of 2.3% of balance of accounts receivable. Compare to current year. 4 Inspect or obtain confirmation of notes receivable. 5. Recalculate interest income and trace to the income account YE YE YE YE YO NA N/A NA Date: Prepared by: Date: Reviewed by: FILE INDEX: Ad D.4 AUDIT PROGRAM AUDITEE: Poly Distributors Ltd FINANCIAL STATEMENT PERIOD: December 31, 2019 ACCOUNT: Purchase/Payable Transactions Tests of Controls Audit Program - Purchases/Payables Test of Controls audit procedures Timing Extent (if applicable) Working paper documentation reference Blitar YE YF Intern Yerin 1. Select a sample of recorded Purchase Orders and examine for: a) Trace to RR for date (Greater than Po date) and Quantity b) Trace to VI for Date (Greater than Po date). Quantity, and Price c) Trace to PJ for PJ Date EQUAL to RR Date, Price 2. Select a sample of Purchase Orders and scan for missing sequence number 3. Select a sample of receiving report documents and scan for missing sequence number 4 Calculate UEL and re-assess Control Risk for Purchase transactions 5. Calculate potential material dollur Ukely error. H Yon 200 YEK ye Date: Prepared by Date: Reviewed by: FILE INDEX: Ad D-S AUDIT PROGRAM AUDITEE Poly Distributors Ltd FINANCIAL STATEMENT PERIOD: December 31, 2019 ACCOUNT: Accounts Puyable Balances Substantive audit program in response to assessed risks Substantive audit procedures Timing Extent of applicable) Working paper documentation reference (of the procedures listed below, perform those considered necessary to provide sufficient appropriate evidence to address the assessed risks and reduce risk of material misstatement to acceptable level.) 1. Obtain a trial balance of accounts payable as of yearend. Recalculate the total and trace to the A/P general ledger control account. b Review the trial balance for unusual items related-party payables or other items and follow up with client enquiries 2. Send positive contirmations to creditors with zer or unnaturally Smali balances. a. Investigate differences reported by creditors. YE YE YU AU YE NDA ter 3. Conduct a search for unrecorded liabilities by reconching a sample of suppliers' statements to accounts payable sub ledger accounts 4. Enquire about terms that justify classifying payables as long term instead of current 5. Obtain written management assertions about completeness of account payables, related-party payables and pledges of assets as collateral for liabilities YE Swed DR YEPC Del Date Prepared by: Date Reviewed by Poly Distributors Ltd... December 31, 2019 o Working Trial Balance index A Initials Date Manager Review Client Balances 2019 Lead Sheet 2018 ARP Account name Dr. Adjusting Entries Dr Cr CE Dr Audited Balances Dr % Change C D D E F G G G G H Cash Acets Receivable Allow For Cbt Accts Inventory Prepaid Expense Office Equipment Acc Depr. Off Equin Store Equip Acc Depr Store Eqp Accounts Payable Salaries Payable Bank Note Payable Common Shares Retained Earnings Sales Sales Discounts Sales Retn & Allow COGS Sales Salaries Exp Advertising Exp Rent Exp Selling Utility exp, store Depr Exp Stor Equip Store Supplies Exp Bad Debt Exp Office Salaries Exp K 256 12% 2x 2% 2% 05 100% 106 1106 11% 1% 0% 0% -1% 10% 296 4% 13% 3N 4% 3% 4% 10% 36 83,000 81,180 112,000 99,680 3,000 2.940 213,000 207,900 11,000 10,830 42,000 42,000 14,000 7,000 330,000 300,000 63,000 30,000 80,000 72,000 5,000 4,950 80,000 80,000 41,200 41,200 393,300 398,500 3,110,000 2.821,100 43,000 42.140 20,400 19,600 2,332,800 2,073,600 187,000 181,300 115,500 110,740 45,000 43,650 36,000 34,560 33,000 30,000 9,200 8.910 3,000 2.940 156,000 151,470 . AA BA CC DD EE FF GG HH 2% KK LL MM 3% A1 Index Initials Date Audited Balances Dr Cr SI ARP % Change Account name Utility exp, office Office Supplies exp Maint/Rep Vehicle Rent exp. Office Deprec Exp. Office Insurance Exp Rent Revenue Int. Expense Lead Sheet HH NN 00 GG 11 PP Client Balances 2019 2018 Adjusting Entries Dr. C. Dr Dr Cr 12,000 11,520 2,000 1,980 4,000 3,920 9,000 8,730 7,000 7,000 6,000 5,700 26,000 25,200 3,600 3,540 1% 2% 3% 0% 5% 00 RR 2% Sub total 3,815,500 3,815,500 3,482,890 3.482,890 105.000 Net Income 111,500 (Revenues less expenses) Dividends of $110,200 were paid in the year 2019. Net Income not closed to RE balance yet. B Poly Distributors Ltd Proposed Audit Adjusting Entries December 31, 2019 Index Initials Date Date Account Description WP Ref Dr Cr