Case Study: Alpha, Inc. Part 1

Case Facts

During the spring of 1978, Juan Acevedo was laid off from his position as a shift manager in a machinery manufacturing plant in Middleton, Texas. Although he searched for a job at various other plants in the area, he could not find another similar position. To provide for his growing family, he started a business in the shop behind his house. He first began the business by powder coating certain parts for local manufacturing businesses and performing custom welding services. After three years, Juan incorporated the business as a C-corporation under the name of Alpha, Inc. Juan expanded the business and moved its operations into a 50,000 square foot facility located in Austin, Texas. Since its inception, Alpha's core business has evolved to where it now manufactures high-end equipment for oil rigs, oil refineries, and other industrial factory equipment. At the end of 20X8, Alpha, Inc. had 85 full-time employees andfor the last three yearshas averaged more than $60 million in sales. To improve accessibility to operating funds, the company established a line of credit with Acme Bank in June 20X6. Acme requires the company to have its financial statements audited on an annual basis. Alpha's audit committee has retained KRS, LP to perform its annual audit.

You are a first-year staff associate with KRS, LP, and you have been assigned to work on the Alpha, Inc. audit engagement. During the audit planning meeting, Accounts Payable was determined to be a significant account with moderate risk to the audit as a whole. One of the tests the engagement team has decided to perform is a test for proper cutoff of liability transactions in order to search for potential unrecorded liabilities. The audit senior on the engagement has asked you to perform this procedure.

Describe in detail at least one way your audit team could perform a cutoff test around year end to search for unrecorded liabilities. Be specific. (i.e., Where would you obtain your sample? What documents would you examine to obtain evidence?)

Case Study: Alpha, Inc. Part 2

The audit senior has provided you with the audit program available in the "ResourceFiles"below which she would like you to follow for testing this account. Download and unzip the "Alpha Files.zip"folder to access all relevant files for this case. The first step in the audit program, developing a sample to test this account, has been previously performed for you. Follow the audit program to conduct your testing, and record your results in the work papers provided. Upon completion, submit both (1) the completed audit program and (2) your completed work papers, by uploading them in the "Your Submission"tab.

Based on standard sampling procedures and following step 1 in the audit program, the following list of customers were selected for inclusion in the sample for testing this account. This list was taken from work paper 4-1 which was created by NMS on 3/11/20X9 while completing the first step of the audit program. The last two customers in the list will be included in the sample only in the event that an error is identified in one of the first 10 items (see step 5 in the audit program):

Customers Included in Sample

1. Alverstone Supplies
2. Seatrain Construction
3. Viceroy Distributors
4. Atlantic Ocean Company
5. MBO Building
6. General Company
7. Aplinc
8. Dennali Shipping
9. Gator Corp.
10. Splint Technologies

To be included only in the event that an error is identified with one of the previousselected items:

1. Unitech
2. Balta Janitorial