You are the staff auditor on a public company and have been assigned the testing of General
Question:
You are the staff auditor on a public company and have been assigned the testing of General & Administrative Expenses. There is currently no workpaper for the testing to be performed so you will have to create one and document your testing. Your goal is to transform the information below into workpaper format using Microsoft Excel. Please include all data presented below in your workpaper. Make sure you document procedures performed as well as assertions tested and any other pertinent information you deem necessary for the reviewer.
Tolerable Misstatement: $45,000
Clearly Trivial: $3,750
Confidence Factor: 1
Sample Size: Need to calculate using non-statistical sampling. Document in workpaper.
General Ledger for G&A Expenses (1/1/19-12/31/19)
8000 | Payroll – Gross Salaries | $ 552,021 |
8001 | Utilities | $ 5,036 |
8002 | Advertising | $ 12,543 |
8003 | Rent | $ 72,702 |
8004 | Legal | $ 16,127 |
8005 | Office Supplies | $ 3,692 |
8006 | Accounting and Tax Fees | $ 54,095 |
8007 | Subscriptions | $9,000 |
The Accounting Manager provided all GL detail for the G&A expenses, and you agreed to the total balance in the trial balance. From your examination of the GL detail, there were no individual items greater than your tolerable misstatement. You will be documenting the 4 selections below (the rest of the sample totaled $78,000 and produced no errors). Selections were made randomly and the Accounting Manager provided the journal entry recorded for each one along with the support listed below. The client will not record adjustments unless they are considered to be material (above your tolerable misstatement).
In your workpaper, there should be a Leadsheet tab, Testing tab where all selections are documented, and Error Projection tab (if applicable). Remember that auditor documentation must be re-performable by the reviewer without looking at details of the selections or supporting documentation. Double-check spelling, all cross-references, calculations, and tickmarks, prior to submitting your final product.
See descriptions of selections on the next page.
Selection 1
Payroll (account 8000), pay period ending 10/16/2019 (paid every 2 weeks), totaling $19,425. A sub-selection was made for one employee (#1295, James Daugherty, Sales Manager) in the amount of $2,000. The HR Director provided the following support for the selection: employee contract, which stated that his salary is $52,000 per year, bank statement for October 2019. On 10/16, there is a total withdrawal for payroll in the amount of $19,425, reference #1J456LI09. The client uses ADP to process all of their payroll (meaning they remit the total amount to ADP, who then divides the total between employees and taxing authorities). Document what additional procedures would need to be done over the use of ADP as a service organization.
Selection 2
Advertising (account 8002), selection amount $2,376, dated 12/15/2019. The Accounting Manager provided an invoice, dated 12/11/2019, for the selection from Total Productions, Inc. The invoice was for online advertising for the period 12/1/19 – 1/31/20. The total invoice amount agreed to the selected amount. The payment was made on 12/28/2019 for the full amount, check #17989.
Selection 3
Rent (account 8003), selection amount $6,058.50 for March rent, booked 3/31/2019. The Accounting Manager provided you the rental agreement with Property Management Pros, which stated rent would be $72,702 per year, prorated evenly across each month. The rental agreement was signed on 12/19/2018. The Accounting Manager also provided the bank statement from December 2019, because they paid for 6 months of rent in advance. You examined the bank statement and noted payment on 12/29 in the amount of $36,351, reference #1R982F96Y. Based on this information, which account would also need to be tested? Please state this in your workpaper documentation.
Selection 4
Legal (account 8004), selection amount $5,403, dated 2/25/2019. The Accounting Manager provided the invoice from an external legal firm, Smith, and Ryder Law Firm. The amount of the invoice agreed to the selected amount and was dated 2/20/2019. The invoice described the services provided as, “Consulting services related to defense in consumer lawsuit – January and February 2019.” The Accounting Manager also provided the bank statement for March where you noted payment to the law firm for $5,403, check #14598, cleared 3/27/2019. What other procedures need to be performed related to this selection? Please note those in your workpaper documentation.
Fraud examination
ISBN: 978-0538470841
4th edition
Authors: Steve Albrecht, Chad Albrecht, Conan Albrecht, Mark zimbelma