SELECTION OF AUDIT TESTS AND RISK

ASSESSMENT FOR THE EXPENDITURE

CYCLE $($ACQUISITIONS AND CASH

DISBURSEMENTS$)$:

The Winery at Chateau Americana

LEARNING OBJECTIVES

After completing and discussing this case, you should be able to:

Select appropriate planned tests of controls, substantive tests of

transactions, analytical tests, and tests of balances for non$-$payroll

expenditure cycle accounts

Assess planned control risk for the non$-$payroll expenditure cycle based on

planned tests of controls

Assess planned detection risk for the non$-$payroll expenditure cycle based

on planned substantive tests

INTRODUCTION

Chateau Americana $($CA$)$ has an annual production of approximately $385,000$ cases

of wine. Production of the $385,000$ cases of wine requires roughly $3,200$ tons of

grapes. One$-$fourth of the needed grapes are harvested from CA's $125-$acre vineyard,

the remaining grapes are predominantly purchased from California vineyards. Other

purchases associated with the production of wine include oak barrels, bottles, cork,

neck wrappers, and labels. CA also has non$-$payroll administrative, marketing, and

maintenance expenditures associated with its wine operations. Marketing

expenditures such as priority distribution, special promotions, and print advertising

have substantially increased in the past year to improve CA's market penetration.

BACKGROUND INFORMATION ABOUT THE AUDIT

$CA$ has the following general ledger accounts related to purchasing and cash

disbursement activities:

Inventory $-$ Production

Prepaid Expenses

Accounts Payable

Accrued Expenses

Travel and Entertainment

Expense

Insurance Expense

Dues and Subscriptions Expense