Evaluate the audit work done by the audit junior on the accounts receivable and property plant and
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Evaluate the audit work done by the audit junior on the accounts receivable and property plant and equipment and outline additional procedures that should be performed by the audit team on future work in this area, clearly identifying why more procedures are needed.
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Notes regarding the accounts receivable and property, plant and equipment work performed by the junior auditor. Accounts Receivables / Unearned Revenue When clients book charter flights, the flight is prepaid, and the amounts are recorded in unearned revenue. Once the service has been provided (the client takes the flight) the unearned revenue related to the flight is transferred to revenue. Large well-established clients do not have to prepay and are invoiced for the amounts of the flights. These represent the accounts receivable amounts on the balance sheet. The prior year audit file indicates there were issues with accounts receivables in prior years - NorthJet had accounted for unearned revenue as accounts receivable. The junior accountant performed analytical review on the accounts receivable noting that percentage of accounts receivable as a percentage of total assets was consistent with the prior year. There were several credit balances in accounts receivable which the junior ignored. No confirmations of accounts receivable were performed. The junior auditor concluded the accounts receivable were fairly stated for the interim period. Property Plant and Equipment Property plant and equipment represents the largest item on the balance sheet and represents the planes that Northjet owns as well as leased planes. They are separated in the general ledger accounts. The junior auditor traced each item on the subsidiary ledger to the original invoice, added the subsidiary ledger and agreed the total to the general ledger. Then the junior auditor signed the working paper concluding that property plant and equipment was fairly stated for the interim period. Notes regarding the accounts receivable and property, plant and equipment work performed by the junior auditor. Accounts Receivables / Unearned Revenue When clients book charter flights, the flight is prepaid, and the amounts are recorded in unearned revenue. Once the service has been provided (the client takes the flight) the unearned revenue related to the flight is transferred to revenue. Large well-established clients do not have to prepay and are invoiced for the amounts of the flights. These represent the accounts receivable amounts on the balance sheet. The prior year audit file indicates there were issues with accounts receivables in prior years - NorthJet had accounted for unearned revenue as accounts receivable. The junior accountant performed analytical review on the accounts receivable noting that percentage of accounts receivable as a percentage of total assets was consistent with the prior year. There were several credit balances in accounts receivable which the junior ignored. No confirmations of accounts receivable were performed. The junior auditor concluded the accounts receivable were fairly stated for the interim period. Property Plant and Equipment Property plant and equipment represents the largest item on the balance sheet and represents the planes that Northjet owns as well as leased planes. They are separated in the general ledger accounts. The junior auditor traced each item on the subsidiary ledger to the original invoice, added the subsidiary ledger and agreed the total to the general ledger. Then the junior auditor signed the working paper concluding that property plant and equipment was fairly stated for the interim period.
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Answer rating: 100% (QA)
An Audit Review of NorthJets Airlines Account ReceivableUnearned Revenue At NorthJet airlines there are two issues of contention First the recording of unearned revenue and account receivable intercha... View the full answer
Related Book For
Auditing a business risk appraoch
ISBN: 978-0324375589
6th Edition
Authors: larry e. rittenberg, bradley j. schwieger, karla m. johnston
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