the document i have attached has all the information for the question to be answered. HOWEVER, ALL I NEED ANSWERED ARE THE QUESTIONS UNDER PART B EXERCISES ON PAGE 5. Thanks!

Assignment #6 Accounts Payable Processing and Unrecorded Liabilities The information that follows is grouped into two categories: 1) Internal Control and 2) Substantive Audit Procedures. This information is to be used to complete the exercises for this assignment. Do the optional exercises only if told to do so by your instructor. Relevant Information Internal Control The Peach Blossom Cologne Company uses a voucher system to make cash disbursements and also maintains an accounts payable subsidiary ledger that provides a record of the total amount owed to each vendor. Vouchers are prepared as invoices are received and are held in an unpaid voucher file (filed by payment date) until the cash is disbursed. A voucher number is a two-number code with the first number representing the month in which the voucher was recorded and the second number representing the order in which the voucher was recorded in the month. For example, 11-3 would be the voucher number for the third invoice recorded in the month of November. The following internal control questionnaire was prepared for you by Jasper Parsons. Study the questionnaire in order to analyze Peach Blossom's control over accounts payable. Parker Shelton explained to you that Dave Dull, the accounts payable clerk, made occasional errors but was improving. While going through the questionnaire, think about the six categories of control procedures: (1) segregation of functions, (2) access, (3) authorization, (4) input controls, (5) processing controls, and (6) output controls, and consider errors or irregularities that could occur. Also review the Permanent File narrative related to accounts payable. Typical accounts payable errors or irregularities include: 1. 2. 3. 4. 5. Purchases may have been recorded in the wrong account. A liability may have been recorded for a fictitious company. The purchase and liability may have been recorded in the wrong accounting period. A purchase or liability may have been omitted. Purchases may have been recorded but the merchandise may not have been received. 103 Internal Control QuestionnaireAccounts Payable Processing Yes No 1. Does the company maintain a voucher system? 2. Are vouchers approved by a responsible official before payment? _ Does a responsible official review the debit distribution of vouchers for proper recording? _ 3. Comments _ Controller initials them. Occasionally controller. Some invoices are run directly through cash disbursements. 4. Are all purchases of merchandise and services recorded In the voucher register before disbursement? _ 5. Does the company maintain an accounts payable subsidiary ledger? _ 6. Is the accounts payable subsidiary ledger reconciled monthly with the accounts payable control account? _ 7. Are vendors' monthly statements reconciled to the accounts payable subsidiary ledger? _ 8. Do adjustments to accounts payable require the approval of a responsible official? _ _ Controller initials. 9. Are all vendors' invoices checked for proper pricing, extensions, footings, and terms? _ Occasionally. 10. Does the company ensure that claims for damaged merchandise are processed promptly? _ 11. Are unmatched invoices, receiving reports, and purchase orders reviewed periodically? _ 12. Are supporting documents reviewed by check signers prior to payment? _ _ 13. Are supporting documents stamped \"cancelled\" by the check signers? _ Mrs. Stockton cancels them. 14. Are checks mailed directly by the person signing the check and not returned to preparers? _ Mailed by accounts payable clerk. 104 Balancing report is printed by software. Having reviewed the internal control questionnaire and the permanent file material, you should now be in a position to evaluate the internal control procedures. Substantive Audit Procedures: Accounts Payable Balances A schedule of accounts payable due as of December 31, 2009, was prepared by Dave Dull. The schedule is referenced E-1. You requested Dave to pull from the files the cash vouchers (along with supporting materials) for all items listed in schedule E-1. He did so and summarized all the information from those vouchers for you in Exhibit 6. (The information in Exhibit 6 is being provided to you in lieu of the actual client documents. Treat this information as though it were the documents belonging to the client and not the auditor.) You may assume that all vouchers have been properly approved and have the appropriate supporting materials attached. You may assume that you traced each vouchered invoice to the accounts payable subsidiary ledger and the January cash disbursements journal and found no discrepancies. As part of your search for unrecorded liabilities you reviewed the voucher register and cash disbursements journal for the period January 1 through January 11, 2010. You also examined the unmatched invoice and receiver file from January 1 to January 22, 2010. You may assume that none of the January disbursements from January 12 through January 22 were applicable to the year under audit; no unmatched invoices or receiving reports for the period January 1 to January 22, 2010 were applicable to 2009. Exhibit 7 includes an excerpt from the receiving log for December showing the last receiving reports for the year. Also included in this exhibit are the voucher register for January 1 to January 11, as well as the receiving log for that same period. You should examine the transactions recorded in these two records to determine whether the company has recorded purchases of merchandise and services in the proper period. You may assume that all the information in the receiving log is correct. You sent confirmations to Fruit Juicy Perfume Company and Fruit Scents, Inc. These confirmations are included in the working papers referenced E-3 and E-4, respectively. Search for Other Unrecorded Liabilities The search for unrecorded liabilities consists of a search for (1) unrecorded accounts payable and (2) a search for other unrecorded liabilities. You should perform the search for unrecorded accounts payable in this assignment documenting your evidence on working paper E-2. Defer the search for other unrecorded liabilities until Assignment #8, Completing the Audit. To complete your search for other unrecorded liabilities, you and/or your assistant did the following: 1. Obtained a letter concerning pending litigation from the client's attorneys, Edwards, Overstreet, and Gilley. The letter is in the working papers referenced A.L./E-5. (This working paper is included in Assignment #8, Completing the Audit.) 2. Obtained a written representation from client management regarding liabilities and other matters. The letter is in the working papers referenced L.O.R./E-6. (This working paper is included in Assignment #8, Completing the Audit.) 3. Reviewed the bank confirmation for possible note liabilities or contingencies. The bank confirmation is found in the Assignment #2 working papers, referenced A-2. 105 4. Reviewed the minutes from meetings of the Board of Directors searching for debt authorization or other liabilities. 5. Reviewed certain operating accounts, such as interest and professional fees looking for possible unrecorded note obligations, additional litigation contingencies, etc. (Assume that you found none.) Note that as you perform your search for other unrecorded liabilities, work performed and evidence collected in other assignments can be applicable. There may be items in other assignments (not detailed here) that relate to your search for unrecorded liabilities. Assignment #8 includes forms for preparing (1) a memorandum dealing with contingent liabilities and subsequent events (working paper E-7) and (2) other unrecorded liabilities (working paper E-8). You should wait until Assignment #8 to complete the search for other unrecorded liabilities and prepare these memos. Exercises PART AAudit of Internal Control (Optional) 1. Prepare a business process flowchart for the Accounts Payable Processing system. Use form P -5 or software. The headings for this flowchart have been provided for you on this form. Remember that the Accounts Payable business process is a continuation of Inventory-Purchases. In your flowchart, show the flow of documentation, the steps involved in the process, and note any internal control features. Start with the purchasing agent's matching of the three documents (vendor's invoice, receiving report, and purchase order). 2. Analyze the control procedures (strengths) related to accounts payable processing. For each strength, describe how you could test the procedure using a test of control. Keep in mind the control procedure categories. Use form CSF-2. Classify the control procedures according to the six categories (see General Instructions and Preparations). 3. For each weakness you find, list the weakness, a possible error or irregularity that may occur because of the weakness, and a compensating substantive test of transactions or balances to detect the error or irregularity assuming the necessary records and documents are available to you. Use form CWF-2. Classify the weaknesses according to the six control procedure categories. You should keep these weaknesses in mind, as well as the financial statement assertions, as you write the substantive audit steps in your programs. 4. Prepare an audit program for the Accounts Payable business process. Your program should consist of (1) tests of controls; (2) substantive tests of details of transactions; and/or (3) dualpurpose tests having both test of controls and substantive aspects. Utilize the analysis of strengths to design your tests of controls and the analysis of the weaknesses to guide you in preparing your substantive tests of transactions, remembering to keep the financial statement assertions in mind. Write your program on form SP-2. Write the appropriate steps under the following headings in your program: Tests of Controls, Dual-Purpose Tests, and Substantive Tests of Transactions. 106 PART BRequired Exercises: Substantive Procedures 1. Prepare a substantive audit program for Accounts Payable Balances and Unrecorded Liabilities. The construction of your audit program for accounts payable balances and unrecorded liabilities should begin with an explicit recognition of the five financial statement assertions: (1) existence or occurrence, (2) completeness, (3) rights and obligations, (4) valuation or allocation, and (5) presentation and disclosure. You should derive your specific audit objectives concerning accounts payable balances and unrecorded liabilities from these assertions. Your audit program should address the five financial statement assertions, as well as any internal control weaknesses you have found. In this regard, keep in mind the six control procedure categories. You may assume that you have satisfied yourself as to any assertions not specifically mentioned in the narrative. As you write your program, remember the generalized evidence-gathering procedures of (1) recalculation, (2) physical observation, (3) confirmation, (4) verbal inquiry, (5) vouching of documents, (6) tracing, (7) scanning, and (8) analytical procedures. Use them to help you write the specific evidence-gathering procedures in your program. Use form AP-5 to write your program. Use the financial statement assertions as the major headings in your program and list the appropriate audit steps under each of these captions. 2. Review the prior year's working papers referenced E-1 to E-4, the Permanent File material related to accounts payable, as well as the internal control questionnaire. After reviewing this material, perform the necessary audit work on working paper E-1 and prepare a schedule similar to E-2 in the prior year's working papers. Also perform any necessary audit work on schedules E-3 and E-4. (Work on schedules E-5 through E-8 is deferred to Assignment #8, Completing the Audit.) 107 PEACH BLOSSOM Accounts Payable Processing Accounts Purchasing Agent Treasurer Payable Clerk COLOGNE P-5 COMPANY 108 109 PEACH BLOSSOM COLOGNE COMPANY CSF-2 Accounts Payable Processing Internal Control Strengths Strength Possible Test of Controls ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ 110 ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ 111 PEACH BLOSSOM COLOGNE COMPANY CWF-2 Accounts Payable Processing Internal control Weaknesses Potential Weakness Compensating Error Substantive Procedure ________________________________________________________________________________ _ ________________________________________________________________________________ _ 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________________________________________________________________________________ 112 _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ 113 PEACH BLOSSOM COLOGNE COMPANY SP-2 Accounts Payable Processing Program ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ 114 _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ 115 AP-5 Substantive Audit ProgramAccounts Payable Balances and Unrecorded Liabilities Assertions Begin with the list of assertions below and add others you think appropriate. Then write your audit program to test those assertions. 1. 2. 3. 4. All material liabilities are recorded. All important contingencies are either provided for in the accounts or disclosed in footnotes. Liabilities are properly classified as to their contingent or direct nature. Liabilities are properly classified as to their current or long-term status. ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ 116 _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ 117 Program Steps ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ 118 _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ ________________________________________________________________________________ _ 119 EXHIBIT 6 PEACH BLOSSOM COLOGNE COMPANY CASH VOUCHERS FOR ACCOUNTS PAYABLE--2009 (with supporting materials attached) =================================================================================================================================== Vendor Receiving Freight Invoice Report 2009 Vendor Item Discount Terms Cost Date Date Date Paid Amount =================================================================================================================================== Advertising transactions Net 30 --- 12-16 Norton Exterminators Pest control Net 30 12-20 Edwards, Overstreet & Gilley 114 12-08 Hammel, Hammel & Johnson Advertising Agency Retainer and legal fees Net 30 12-23 Fruit Juicy Perfume Co. See voucher in inventory section 12-26 Alex McBane Heating & Air Conditioning See voucher in property, plant, and equipment section 12-34 Barrows Office Supply Office supplies Net 30 12-36 Kalvin & Hubbs Consulting Consulting engagement Net 30 12-38 Fruit Scents, Inc. See voucher in inventory section 12-42 Flash Freight Co. See voucher in inventory section 5740 12/7/09 --- 1/4/10 5740 --- 445 12/16/09 --- 1/4/10 445 --- 8700 12/17/09 --- 1/4/10 8700 12/16/09 12/17/09 1/4/10 147226 12/23/09 --- 1/5/10 1840 --- 1590 12/18/09 --- 1/5/10 1590 --- 2350 12/28/09 --- 1/6/10 2350 12/28/09 12/30/09 1/8/10 8487 12/31/09 --- 1/11/10 412 EXHIBIT 7 PEACH BLOSSOM COLOGNE COMPANY Receiving Log December 2009 Date Shipped 12/12/09 Receiving Date 12/17/09 12/26/09 12/30/09 Receiver No. Vendor 12-10 Fruit Juicy Perfume Co. 12-11 Fruit Scents, Inc. Description 804 cases Skin Tone Lotion 900 cases Moisturizing Lotion Terms FOB, Chi 103 cases Smoothing Lotion FOB, Hope PEACH BLOSSOM COLOGNE COMPANY Receiving Log January 2010 Date Shipped 12/30/09 Receiving Date 1/4/10 Receiver No. Vendor 1-01 Fruit Juicy Perfume Co. 12/31/09 1/6/10 1-02 12/31/09 1/7/10 1-03 Description 75 cases Face Cream Terms FOB, Chi Fruit Juicy Perfume Co. 45 cases Moisturizing Lotion FOB, Chi Fruit Scents, Inc. 85 cases L'Eau de Pomme Cologne FOB, Hope 115 EXHIBIT 7 (Continued) PEACH BLOSSOM COLOGNE COMPANY Voucher Register January 2010 (selected portions) Date Voucher No. 1/4/10 1-1 Central Power & Light Electric service 11/26 to 12/24 830 1400 1/4/10 1-2 William F. Reimann Truck repairs 828 468 1/4/10 1-3 Fruit Juicy Perfume Co. Receiver No. 1-01 109 8064 1/4/10 1-4 Hoffmann Supply Co. Conveyor belts 828 240 1/6/10 1-5 Fruit Juicy Perfume Co. Receiver No. 1-02 109 3888 1/6/10 1-6 A to Z Janitorial Services for December 832 365 1/6/10 1-7 Flash Freight Co. Freight for merchandise on rec. 1-03 for invoice dated 12/31/09 109 340 1/6/10 1-8 Fulton Paper Co. Copying paper 824 275 1/7/10 1-9 Fruit Scents, Inc. Receiver No. 1-03 109 46988 1/8/10 1-10 Steck Hamilton Office Supplies Office supplies 824 1214 1/11/10 1-11 Petrozine Fuel Co. Fuel oil 830 786 Name Explanation 116 Acct # Amount Peach Blossom Cologne Company E-1 Accounts Payable 12-31-09 (Prepared by client) ============================================================================== Vo. No. Vendor Amount ============================================================================== 12-08 Hammel, Hammel & Johnson 5740 12-16 Norton Exterminators 445 12-20 Edwards, Overstreet, and Gilley 8700 12-23 Fruit Juicy Perfume Co. 147226 12-26 Alex McBane Heating & Air Cond 1840 12-34 Barrows Office Supply 1590 12-36 Kalvin and Hubbs Consulting 2350 12-38 Fruit Scents, Inc. 8487 12-42 Flash Freight 412 176790 117 118 119