May 2, 2011
Audit Program Design Part II
The audit of Apollo Shoes, Inc. requires a design of steps to develop audit objectives to plan the audit. The financial statements are divided into cycles to better manage the audit and disperse to staff within the firm. The following cycle’s sales and collection, payroll and personnel and acquisition and payment were developed to design test of controls, substantive tests of transactions and analytical procedures. Anderson, Olds, and Watershed, LLP will be designing test of controls, substantive tests of transactions and analytical procedures for Apollo. This will allow our firm to better understand the internal controls within their company along with making sure the company is in compliance with the requirements of the Sarbanes-Oxley Act of 2002 and generally accepted accounting principles.
Sales & Collection cycle
Sales and collections audits test financial information relating to the sales of goods and services to consumers and the payment collection for these sales. In Apollo shoes audit AOW will involve the decisions and processes necessary for the transfer of the ownership of goods and services to customers after they are made available for sale; it begins with a request by a customer and ends with the conversion of material on service into an account receivable and ultimately into cash. There are several functions include in this cycle such as processing customer orders, granting credit , shipping goods, billing customer , recording sales , processing cash receipts, sales return & allowances process, charging off uncollectible accounts receivable and provision for bad debts. Auditors will also compare the company's accounting manual to Generally Accepted Accounting Principles (GAAP) to ensure that Apollo Shoes has no major violations of GAAP have occurred. Other testing measures verify that the sales is to a legitimate outside individual or company, which individuals control the paperwork and approval process for making sales, and that any unusual dollar amounts or sales discounts have been properly authorized. After completing these general audit functions, auditors may continue testing each item in the sample based on the company's accounting procedures. These extra tests will ensure that Apollo Shoes sales are properly recorded in the general ledger and erroneous information exists on the company's income statement regarding sales (Arens, Elder, & Beasely, 2006). Our firm with conduct test of transaction based on following table for Apollo shoes.
Substantive Tests of Transactions for Sales Cycle
Objective| Procedure| Comment|
Recorded sales exist (occurrence)| Trace from sales journal or invoice to shipper.| Almost always done, even if controls are effective.| Existing sales are recorded (completeness)| Trace from shippers to recorded sales (invoice or journal)| Probably not necessary if tested controls.| Sales are recorded at proper amounts (accuracy)| Recomputed quantities and extensions (re performance).Agree price to price list.| Normally done. Can reduce sample size if controls exist.| Sales are properly classified| Check documents supporting sale for proper account distribution in sales journal.| Not normally an important issue.| Sales are timely recorded| Compare dates on shipper with sales invoice and entry in sales journal| Really a test of control.| Sales are summarized| Foot sales journal and trace to entry in general ledger.Test reconciliation of A/R sub ledger to general ledger.| Generally always done.|
The collections audit consists of verifying that the money needing to be collected from the sales cycle is being done in a timely, efficient manner. The collections...