You have been working on the Deli's audit for the year ending December 31, 2019. The Deli is privately owned, but it has an outstanding bank loan. The bank, First Fort Lauderdale Central (FFLC), is owned by a group of investors who require yearly audited financial statements that are in accordance with GAAP. You decide to write a Pre-Audit Report for Sam, so he can correct any accounting issues or departures from GAAP before you begin to write the actual audit report.

Write a Pre-Audit report for Sam, Not for (FFLC) Introduction Body (include findings and recommendations) Conclusion You want your client, Sam, to understand what you have written. Additional Information: You have learned the Sam's Deli is a privately-owned company with annual sales of 1.2 million.

The two locations combined have 40-50 employees at any given time. The company has an outstanding bank loan.

Your Pre-Audit Report should expose any departures from GAAP standards. Be specific enough that Sam can make your recommended changes. Do not forget to mention what he doing right as well as what is wrong. Your recommendations are based on the departures from GAAP given below. A few sentences addressing each will be enough. Petty cash is $1000. The cash is used for office supplies, lunches, and other minor expenses.

The receipts rarely tie to the cash box. Also, the office supplies are being directly expensed to the income statement instead of being capitalized and expensed as they are used. The year-end inventory was not independently observed by an auditor. The company is using replacement cost to value its inventory as opposed to lower of cost or market. A delivery truck purchased for $7000 was expensed rather than capitalized. Some of the accounts payable invoices and aging schedules are not available as three boxes of documentation were damaged by a water heater flooding the area where those records are kept. In December, a paycheck was issued to the owner for $50,000. The owner then gave the employees cash bonuses equal to the net amount of his/her paycheck. Only refer to GAAP; don't mention any IRS issues or ramifications regarding this transaction.

Answer rating: 100% (QA)

Answer Preaudit report is prepared to find any departure of accounting procedure from the generally accepted accounting principles The findings and recommendation is communicated to the management thr... View the full answer