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Solutions for the Biltrite Bicycles Inc. Case

Module I - Assessment of Inherent Risk..............................................................3 Module II – PRELIMINARY ASSESSMENT OF CONTROL RISK BASED ON AN UNDERSTANDING OF THE DESIGN OF CONTROLS ................17 Module III - Control Testing: Sales Processing................................................29 Module IV - PPS Sampling: Factory Equipment Additions............................31 Module V - Accounts Receivable Aging Analysis..............................................35 Module VI - Sales and Purchases Cutoff Tests..................................................42 Module VII - Search for Unrecorded Liabilities...............................................47 Module VIII - Dallas Dollar Bank Reconciliation.............................................49 Module IX- Analysis of Interbank Transfers....................................................52 Module X - Analysis of Marketable Securities..................................................54 Module XI - Plant Asset Additions and Disposals.............................................57 Module XII - Estimated Liability for Product Warranty.................................61 Module XIII - Mortgage Note Payable and Note Payable to Bank Two.........63 Module XIV - Working Trial Balance................................................................66 Module XV - Audit Report..................................................................................80

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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SOLUTIONS FOR THE BILTRITE CASES

The following pages in this manual contain the solutions to the Biltrite Bicycles, Inc. audit practice case. The solutions are presented by module number. Answers to the narrative questions are presented first, followed by the completed working papers as solutions to those parts requiring audit working paper completion. The completed working papers are also included in the accompanying instructor's resource CD (IRCD) for those preferring to use the computer for viewing the completed audit working papers. The solutions on the IRCD may be activated as follows: a. b. c. Activate Excel or compatible spreadsheet program. Insert the IRCD containing the Biltrite Solutions in your CD drive. Retrieve the completed working papers using the same titles as contained in the data files students download from the book’s web site.

In addition to the completed working papers, the IRCD and this Biltrite solutions manual include a complete set of audit adjustments and reclassifications that the student will need to complete Module XIV. After the class has completed and submitted Modules I through XIII, the instructor may wish to present the students with a copy of the suggested entries as a set of check figures before proceeding to Module XIV. Before the students begin Module XIV, print out the AJE file (audit adjustments and reclassifications) and make a sufficient number of copies for the class. The Biltrite modules should be completed by the students according to the following schedule: MODULE NUMBER I II III, IV, and V VI and VII VIII, IX, and X XI IV, XII, and XIII XIV XV FOLLOWING CHAPTER 4 6 10* 11 12 13 14* 15 16

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

SOLUTIONS FOR THE BILTRITE CASES

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Module I - Assessment of Inherent Risk
1. See Figure BR.A-Biltrite’s organizational chart. Based on the chart and the case description, the following strengths and weaknesses should be identified: STRENGTHS: • The structure shows adequate separation within the CBIS function, i.e., systems analysis and programming are separate from data processing and control (implications for control risk assessment) • Separation is also maintained between the...
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