Advanced Auditing Final Review Case note
Final Exam Review Practice Case
IPI Case:
Required:
1. Identify Accounting System Issues
System implementation
Lack of training
I: people try to override the system, inaccurate reporting
R: The company who installed the system needs to be contacted and hold training session for employees
Glitches
I: inaccurate reporting, create room for error
R: Contact the company again and get them back and give them responsibility to fix the glitches
2. Identify Control Issues:
Understaffing people are overworked, may get sloppy
R: Hire more staff
Lack of segregation of duties, bookkeeper does the bank rec and A/R ledger
R: Get someone else to do one of those duties
Mismatch b/w what’s shipped and what’s recorded as revenue since sales reported based on what they are supposed (when order is confirmed for shipment) but Louis goes down to the shipping department and adds a few more COGS is correct but revenue is not
R: Base revenues on actual quantities shipped
Year end cut-off error – Revenue: Takes 3 weeks to get the orders out but actg department records sales based orders
R: System is changed so that revenue is recorded only when shipment is confirmed, send shipping log to the actg department so they know
3. Policy compliance
Costs capitalized to inventory
IPI’s accounting policies state that only the rental cost associated with production should be inventoried.
Revenue not recognized upon shipment
4. Bonus:
Owner’s bias
Criteria b) Number of Units @ $65/unit Validate the revenue in dollars as well as quantity
Shipping logs normalize them for what the customers really wanted
Select a sample of quantity shipping and compare them to POs
$65/unit: Select sample from sales ledger (dollar amt) invoices (break down by quantity so can calculate average) Shipping by do analysis based on quantity shipped or PO
Criteria c) Have to generate profit
Adjust NI by costs capitalized to inventory
Back out revenue (on units
IPI Case:
Required:
1. Identify Accounting System Issues
System implementation
Lack of training
I: people try to override the system, inaccurate reporting
R: The company who installed the system needs to be contacted and hold training session for employees
Glitches
I: inaccurate reporting, create room for error
R: Contact the company again and get them back and give them responsibility to fix the glitches
2. Identify Control Issues:
Understaffing people are overworked, may get sloppy
R: Hire more staff
Lack of segregation of duties, bookkeeper does the bank rec and A/R ledger
R: Get someone else to do one of those duties
Mismatch b/w what’s shipped and what’s recorded as revenue since sales reported based on what they are supposed (when order is confirmed for shipment) but Louis goes down to the shipping department and adds a few more COGS is correct but revenue is not
R: Base revenues on actual quantities shipped
Year end cut-off error – Revenue: Takes 3 weeks to get the orders out but actg department records sales based orders
R: System is changed so that revenue is recorded only when shipment is confirmed, send shipping log to the actg department so they know
3. Policy compliance
Costs capitalized to inventory
IPI’s accounting policies state that only the rental cost associated with production should be inventoried.
Revenue not recognized upon shipment
4. Bonus:
Owner’s bias
Criteria b) Number of Units @ $65/unit Validate the revenue in dollars as well as quantity
Shipping logs normalize them for what the customers really wanted
Select a sample of quantity shipping and compare them to POs
$65/unit: Select sample from sales ledger (dollar amt) invoices (break down by quantity so can calculate average) Shipping by do analysis based on quantity shipped or PO
Criteria c) Have to generate profit
Adjust NI by costs capitalized to inventory
Back out revenue (on units