Write the audit approach portion of the cases organized around these sections:

Objective. Express the objective in terms of the facts supposedly asserted in financial records, accounts, and statements.

Control. Write a brief explanation of desirable controls, missing controls, and especially the kinds of deviations that could arise from the situation described in the case.

Tests of controls. Write some procedures for getting evidence about existing controls, especially procedures that could discover deviations from controls. If there are no controls to test, then there are no procedures to perform; go to the next section. A procedure should instruct someone about the source(s) of evidence to tap and the work to do.

Audit of balance. Write some procedures for getting evidence about the existence, completeness, valuation or allocation, or rights and obligations assertions identified in your objective section.

Discovery summary. Write a short statement about the discovery you expect to accomplish with your procedures.

Bailey Books Inc. is a retail distributor of upscale books, periodicals, and magazines. Bailey has 431 retail stores throughout the southeastern states. Three full-time purchasing agents work at corporate headquarters. They are responsible for purchasing all inventory at the best prices available from wholesale suppliers. They can purchase with or without obtaining competitive bids. The three purchasing agents are R. McGuire in charge of purchasing books, M. Garza in charge of purchasing magazines and periodicals, and L. Collins (manager of purchasing) in charge of ordering miscellaneous items such as paper products and store supplies.

One of the purchasing agents is suspected of taking kickbacks from vendors. In return, Bailey is thought to be paying inflated prices, which first are recorded in inventory and then in cost of goods sold and other expense accounts as the assets are sold or used.

The duties of Collins, the manager in charge, do not include audit or inspection of the performance of the other two purchasing agents. No one audits or reviews Collinss performance.

The purchasing system is computerized and detail records are retained. An extract from these records is in Exhibit 8.51.1. This kickback scheme has been going on for two or three years. Bailey Books could have overpaid by several hundred thousand dollars.

EXHIBIT 8.51.1BAILEY BOOKS, INC

EXHIBIT 8.51.1 BAILEY BOOKS, INC Selected Purchases 2015-2017 Items Purchased 2017 Vendor Date of Last Bid Percent of Purchases Bid (3-yr. period) 87% 12/01/13 94 57 91 88 81 2015 $ 83,409 62,443 1,404,360 321,644 874,893 921,666 2,377,821 31,640 821,904 186,401 431,470 436,820 16,280 Armour Burdick Canon DeBois, Inc. Elton Books Fergeson Guyford Hyman, Inc. Intertec Jerrico Julian-Borg King Features Lycorp Medallian Northwood Orion Corp. Peterson Quick Robertson Steele Telecom Union Bay Victory Williams 2016 $02,929 70,949 1.947,601 218,404 781,602 1,021,440 2,868,988 40,022 898,683 111,923 589,182 492,687 17,404 61,227 992,121 416,777 Books Sundries Magazines Paper Books Books Magazines Supplies Books Paper Magazines Magazines Sundries Books Books Paper Supplies Supplies Books Magazines Sundries Books Magazines Sundries 11/03/15 06/08/15 07/21/15 09/08/15 10/08/15 10/22/15 11/18/15 10/04/15 02/07/15 11/18/15 $810,103 76,722 2,361,149 121,986 649,188 1,567,811 3,262,490 46,911 949,604 93,499 371,920 504,360 21,410 410,163 86 72 44 89 99 861,382 86,904 114,623 803,493 12/15/15 12/07/14 11/02/14 NA 11/03/15 12/01/15 11/03/15 15 N/A 86 96 90 2,361,912 621,490 81,406 4,322,639 123,844 31,629 96,732 3,040,319 823,707 101,193 4,971,682 141,909 35,111 110,441 3,516,811 482,082 146,316 5,368,114 143,286 42,686 12/03/15 06/09/15 97 89 EXHIBIT 8.51.1 BAILEY BOOKS, INC Selected Purchases 2015-2017 Items Purchased 2017 Vendor Date of Last Bid Percent of Purchases Bid (3-yr. period) 87% 12/01/13 94 57 91 88 81 2015 $ 83,409 62,443 1,404,360 321,644 874,893 921,666 2,377,821 31,640 821,904 186,401 431,470 436,820 16,280 Armour Burdick Canon DeBois, Inc. Elton Books Fergeson Guyford Hyman, Inc. Intertec Jerrico Julian-Borg King Features Lycorp Medallian Northwood Orion Corp. Peterson Quick Robertson Steele Telecom Union Bay Victory Williams 2016 $02,929 70,949 1.947,601 218,404 781,602 1,021,440 2,868,988 40,022 898,683 111,923 589,182 492,687 17,404 61,227 992,121 416,777 Books Sundries Magazines Paper Books Books Magazines Supplies Books Paper Magazines Magazines Sundries Books Books Paper Supplies Supplies Books Magazines Sundries Books Magazines Sundries 11/03/15 06/08/15 07/21/15 09/08/15 10/08/15 10/22/15 11/18/15 10/04/15 02/07/15 11/18/15 $810,103 76,722 2,361,149 121,986 649,188 1,567,811 3,262,490 46,911 949,604 93,499 371,920 504,360 21,410 410,163 86 72 44 89 99 861,382 86,904 114,623 803,493 12/15/15 12/07/14 11/02/14 NA 11/03/15 12/01/15 11/03/15 15 N/A 86 96 90 2,361,912 621,490 81,406 4,322,639 123,844 31,629 96,732 3,040,319 823,707 101,193 4,971,682 141,909 35,111 110,441 3,516,811 482,082 146,316 5,368,114 143,286 42,686 12/03/15 06/09/15 97 89