Prepaids You now need to audit prepaid but don’t spend too much time on them. There just isn’t a lot of risk in this area. Because the amounts are not significant, let “the Crumpler” do most of the legwork (vouching for invoices, examining canceled checks, examining titles, etc.) for you on prepaid and fixed assets. On second thought, insurance expense looks really low compared to last year’s – better check it out. Other Assets Since I know that your hands have been full, I tried to help out with other assets. With the information below, I think you can complete the Investments and other assets sections (I-1): 

1. By luck, Shock-Proof Socks is one of our firm’s clients. I checked with Dave Masterson, the audit manager, about how the company is doing. He said that after reporting no income for several years, they struck gold in 2017, reporting a total income of $3,130,610.03. The company has yet to pay out any dividends though. 

2. When I had lunch with Eric Unum, we discussed Apollo’s recent purchase of Synergizer Battery stock. He indicated that Larry eventually wanted to purchase controlling stock in the company when Apollo started moving production in-house. While in his office, I examined the broker’s confirmation, the canceled check (# 3582), and examined the stock certificate for 20,000 shares in Apollo’s name. The price of the stock was unchanged as of December 31 from its purchase price of $16.13. Personally, I would be surprised if Apollo will ever be able to purchase even 5% of Synergizer’s stock. 

3. You may want to think about the Phoneshoe patent, since the company has decided to discontinue research and development efforts on it. 

4. Investment income is composed of the equity earnings in Shock-Proof Socks and a transfer from the Controller’s Clearing Account for $330,375.80. The clearing account is a temporary account Apollo uses for out of balance items and transactions they can’t identify. If there is a balance at the end of the year, they either recognize miscellaneous income or expense to clear it out. The amount is the same amount as the December 26 purchase of the investment in Synergizer. You should investigate this further. 

5. Do some analytic procedures on interest income to make sure that it is reasonable with respect to the interest rate on the bank confirmation and compared to last year.

Answer rating: 100% (QA)

Prepaids should be audited but not for too long There isnt a lot of exposure in that area On prepaid and fixed assets let the Crumpler handle the majo... View the full answer