ACCT 305 Apollo Shoes 7e Solution_Revenues & Expenses. Teaching Notes

ACCT 305 Apollo Shoes 7e Solution_Revenues & Expenses. Teaching Notes The audit plan for revenues, expenses, stockholder’s equity and final general audit procedures are included here. Revenues: Task: Apollo P ...

ACCT 305 Apollo Shoes 7e Solution_Revenues & Expenses. Teaching Notes The audit plan for revenues, expenses, stockholder’s equity and final general audit procedures are included here. Revenues: Task: Apollo Page • Prepare a memo explaining that revenue was confirmed in the AR testing. 134 • Use analytical procedures to test returns and warranties 134 Expenses: Task: Apollo Page • Reference those expense accounts that have been tested to the appropriate workpapers. 134 • Use analytical procedures to test expense accounts that should be comparable to the previous year. 134 • For the remaining expenses document reasons for any fluctuations. 134 Points to Remember: Revenues: • Our testing of revenues is limited due to the nature of the Apollo simulation. We will assume through the testing of accounts receivable (including confirmation of 2017 sales), our review of revenue internal controls, and overall analytic procedures, that revenues are fairly stated (except for the Mall-Warts sale). • At the end, Apollo will not post the sales and accounts receivable adjustments we recommend from Mall-Warts filing bankruptcy. Note that this comes after we have completed the audit, so several of our estimates and workpapers will have the Mall-Wart sale and accounts receivable proposed adjustments included. Students will not be asked to go back and change the workpapers, estimates, etc.   Expenses: • As noted above income taxes are based on reversing the Mall-Wart sale. Audit Procedures Audit Objectives W/P Ref. Initials Comments 1. Obtain analyses of sales, cost of goods sold, and gross profit by product line, department, di¬vision, or location. a. Trace amounts to the general ledger. b. Compare the analyses to prior years, inquire for explanations of significant variations and investigate them. c. Determine one or more standard markup percentages and calculate expected gross prof¬its. Inquire for explanations of significant variations compared to actual amounts in the accounts. Investigate the explanations. 2. Coordinate procedures for audit of revenue with evidence obtained in other audit plans: 3. Scan the revenue accounts for large and unusual items and for debit entries. Vouch items to supporting documentation. 4. Obtain written management representation about terms of sales, rights of return, consign-ments, and extraordinary, unusual, or infrequent transactions. Audit Procedures Audit Objectives W/P Ref. Initials Comments 1. Obtain schedules of expense accounts comparing the current year with one or more prior years. a. Trace amounts to the general ledger. b. Compare the current expenses to prior years, inquire for explanations of significant vari¬ations, and investigate them. c. Be alert to notice significant variations that could indicate failure to defer or accrue ex¬penses. d. Inquire for explanations of significant variations. Investigate the explanations. 2. Compare the current expenses to the company budget, if any. Inquire and investigate expla-nations for significant variances. 3. Coordinate procedures for audit of expenses with evidence obtained in other audit plans: Expenses Other Audit plans Purchases, Cost of goods sold Cash Disbursement, Inventory Inventory valuation losses Inventory Warranty and guarantee expense Cash disbursement Inventory; A/P Royalty and license expense Cash disbursement; A/P Inventory; PP&E; Marketing, product R&D expense Cash disbursement; Investments; Intangibles Investment value losses Investments Rental property expenses Cash disbursement; Investments Amortization of intangibles Intangibles Bad debt expense Accounts receivable Depreciation expense PP&E Property taxes, insurance Prepaid exp; PP&E; A/P lease and rental expense Cash disbursements; PP&E Repairs and maintenance PP&E; Accounts payable Interest expense Long-term liabilities Pension and retirement benefits Liabilities; Payroll Salaries, compensation Payroll Sales commissions Payroll Prepare analyses of sensitive expense accounts, such as legal and professional fees, travel and entertainment, repairs and maintenance, taxes, and others unique to the company. Vouch significant items therein to supporting invoices, contracts, reimbursement forms, tax notices, and the like for proper support and documentation. Audit Procedures Audit Objectives W/P Ref. Initials Comments 1. Scan the expense accounts for large and unusual items and for credit entries. Vouch items to supporting documentation. 2. Obtain written management representations about long-term purchase commitments, con-tingencies, and extraordinary, unusual, or infrequent transactions.