Module I - Assessment of Inherent Risk2
Module II – Assessment of Control Risk16
Module III - Control Test: Sales Processing28
Module IV - PPS Sampling: Factory Equipment Additions30
Module V - Accounts Receivable Aging Analysis34
Module VI - Sales and Purchases Cutoff Tests41
Module VII - Search for Unrecorded Liabilities46
Module VIII - Dallas Dollar Bank Reconciliation48
Module IX- Analysis of Interbank Transfers51
Module X - Analysis of Marketable Securities53
Module XI - Plant Asset Additions and Disposals57
Module XII - Estimated Liability for Product Warranty61
Module XIII - Mortgage Note Payable and Note Payable to Bank Two63 Module XIV - Working Trial Balance66
Module XV - Audit Report82
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.Activate Excel or compatible spreadsheet program.
b.Insert the IRCD containing the Biltrite Solutions in your CD drive. c.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 FOLLOWING CHAPTER
III, IV, and V10*
VI and VII11
VIII, IX, and X12
IV, XII, and XIII14*
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:
• 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 accounting and finance functions (implications for control risk assessment). • The internal audit staff is competent (but see weaknesses below, implications for control risk assessment). • The corporate controller’s former affiliation with the accounting firm enables him to better assist the audit team in completing various tasks (but see weaknesses below).
• Although competent, the internal audit staff reports to the corporate controller. This impairs audit independence within the organization and places too much emphasis on financial auditing relative to operational auditing. • Having once been employed by the auditing firm, the corporate controller is familiar with the firm’s auditing strategies and procedures. This knowledge could assist in concealing fraud from the audit team. • Given a manufacturing facility of this magnitude, a separate “plant assets” section within the accounting function...