Generally Accepted Accounting Principles and Substantive Tests

Topics: Generally Accepted Accounting Principles, Internal control, Balance sheet Pages: 4 (1014 words) Published: June 20, 2013
PRAIRIE TECHNOLOGY PARTNERS
Planning Memo December 31, 2011

We have been retained as continuing auditors for Prairie Technology Partners (PTP) for the year ending December 31, 2011

Engagement Objectives

* Provide our report on the examination of PTP's financial statements by February 5, with year-end fieldwork to begin January 14, 2012 * Issue our management letter comments by February 10, 2012 Preliminary Analytical Review

Briefly describe the results of your analytical procedures. Print this memo as an outline, then compose your answers as attachments in your wordprocessor. Describe any unusual or unexpected relationships that suggest risk of material misstatement? Percent of change in sales for 2011 are up from last year but still less than industry average. Inventory’s percent of change has increased to 19.6% from 2011 to 2010. This is 8.2% above the industry’s average, which might lead to obsolesce of inventory. Gross profit margin and net profit margin has increased but gross profit margin is above industry average and net profit margin is below industry average. We noticed a couple one-sided entries on the books for pre-paid expenses and accrued expense. Analyzing the cash flows statement, we found a mathematical error in the decrease of cash and cash equivalents. Analyzing the balance sheet to the general ledger, we found a few a few misstatements with account receivable and inventory. Also a misstatement in the calculation of fixed assets, both in this year’s financial statement as well as last years. We noticed a few related party transactions that were not disclosed in the financial statements such as the relationship with Netgear. Mr. Elmer Gates is VP of network technologies at Netgear.

Materiality

Briefly describe your computation of planning materiality including the factors you considered in your estimate. We computed our...
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