Bradmark Wholesale
General Supply
ACL Case Study
This paper contains the summary of the details and results of the audit tests on
Bradmark’s Revenue and Expenditure Cycles. The audit tests were performed through the ACL Program.
2005
Rachelle Cultura | Trixia Ebol | Christine Fonseca
Mary Rose Samas | Nadaine Tongco
Ross & Specter Co.
October 24, 2012
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REVENUE CYLCE
Assessment of Internal Controls over the Revenue Cycle
The assessment of Bradmark’s internal controls over its revenue cycle procedures were done through the analysis of the processes each department is undertaking.
For the Sales Department, it is but right that the clerk will seek the approval of the credit manager for customers
with
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After taking into account the results for these two tests, the should-be balance for the Total Sales of the period was computed to be $5,317,470.36.
Valuation or Allocation
The total Accounts Receivable balance in the records of $4,752,257.70 was verified by setting a filter of
“Remit_Num = 0” and then getting the total amount due. By doing this, only those sales which do not yet have a remittance advice are part of the accounts receivable. The figure below is the outcome of this procedure.
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However, if the difference between the total sales and the total cash received (for the period ending December
31, 2004) was computed, then the total Accounts Receivable balance would be $4,578,008.14. This indicates that the Accounts Receivable is misstated in the financial statements.
Moreover, from the analyse tab and the function “Age”, an aging of the Accounts Receivable was performed.
The summary of this analysis can be seen in this figure:
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It should be noted that based on this test, the allowance for doubtful accounts should be adjusted to reflect the actual accounts, which can be considered as uncollectible, i.e. those that are already over 90 days. The balance would then be $1,945,870.20.
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Compared to the current estimation method of the Allowance for Doubtful Accounts of Bradmark, this method of aging the Accounts Receivable is more appropriate. This also ensures that the
E. Why does the auditor not use the same tolerable misstatement or percentage of account balance for all financial statement accounts?
The objective of analytical procedures is to identify the existence of unusual transactions and events, and amounts, ratios and trends that might indicate matters that have financial statement and audit planning ramifications*. First, the auditors should consider information regarding the industry in which the client operates**. In this case, average machine setup time from start to finish is approximately six hours, which is slightly below the industry average. It means the company is efficient in preparation for production. Also, the auditors should compare client data with prior period data***. For example, days sales in receivables increased from 48.4 days (2004) to 56.3 days (2005). Though sales didn't increase a lot ,but days sales
We conducted several processes to test the accounts receivable of Wealthy Watches Inc. At the beginning, we agreed the balance of the accounts receivable detail listing to the trial balance and subsequently to the financial statements to ensure completeness of the population.
1. A roll forward is an important test in relation to year-end balance of gross PPE. It is necessary for the auditor to have assurance about the amount on the year-end 2011 balance sheet. However, a majority of the dollar amounts on the balance sheet should have been tested in the previous year. Roll forward allows the auditor to asses any activity since the last recording on the balance sheet. The mathematical accuracy is crucial because if the numbers are off, the auditor could be tested additions and/or disposals information that is not right. The beginning balance after the roll forward must equal the amount from the audited balance from the previous year, and these must also agree to the lead sheet. This is because these are
1.3 Before going to the next account, let’s analyze the Accounts Payable account closer. This account is special. Look at the Control data tab
Answer: Aging schedules definitely help a company keep track of which of its customers are paying on time, and are useful in figuring cash flow. In this case, it is apparent that the majority of accounts receivable by the end of March are less than 30 days old (80.8%). By the end of June, that percentage goes down to 63.7%. By the end of March, 19.2% of accounts receivable are between 30-60 days old, and by the end of June, there is 36.3%. 0% of accounts receivable get to be over 60 days old, which indicates payment.
The allowance for doubtful accounts is lower than last year even though the receivables and the revenue are higher. This does not follow any form of consistency in that case. GAAP only allows the establishment of the allowance for doubtful accounts that are supported by appropriate analyses and that the policy is well documented and applied consistently from period to period. Again, without additional information the consistency item is an issue here.
When an account receivable is determined to be uncollectable it is no longer qualified as an asset and should be written off. A write off reduced the balance of the customers
d. “The auditor's reliance on substantive tests to achieve an audit objective related to a particular assertion may be derived from tests of details, from analytical procedures, or from a combination of both. The decision about which procedure or procedures to use to achieve a particular audit objective is based on the auditor's judgment on the expected effectiveness and efficiency of the available procedures. For significant risks of material misstatement, it is unlikely that audit evidence obtained from substantive analytical procedures alone will be sufficient (PCAOB, AS 2305.09).”
Allowance for doubtful debts however increased by 0.03% in the fiscal year ending 2015. This was followed by a drop in net accounts receivables in 2015 by 0.09%, due to the changes in the account receivables accounts.
11. Accounts receivable turnover and days sales in accounts receivable for the last three years:
The proportion of the total dollar amount receivable I included in the confirmation request is in “Account Receivable Aging Analysis” by diving the total amount that is collectible “C” by the total amount of sales. The result is 82% ($9,803,430/$11,920,028) of the total dollar balance in accounts receivable.
When engaged in auditing a public firm, such as Apollo Shoe Inc., an auditor must determine when to trust in the company’s internal controls and when to ascertain auxiliary testing methods are obligatory to analyze control risks. The sales and collection cycle is rather a substantial fraction of the audit because this unique segment employs a multitude of documentation and records ranging anywhere from customer and sales orders, shipping documents, credit memos, and general journal entries; therefore, a working
Accounts receivable are typically unsecured and are derived from revenues earned from customers primarily located in the United States. The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses; historically, such losses have been immaterial and within management 's expectations.
Study the accounting manual on date of shipment and make inquiry about accountants’ instructions to date sales.