7-35 Here are expected values for each account except sales and the calculated difference between the expected value
and actual recorded balance:
ACCOUNT
EXPECTED VALUE
DIFFERENCE
IN EXPECTED
AND RECORDED
REASONING TO SUPPORT EXPECTED VALUE
Executive
salaries
$563,348
($546,940 x 103%)
–9.34%
($563,348 – $615,970) /
$563,348
All executives received a 3% increase in salaries
effective November 1, 2015. There were no
additions to the number of executives in the current
year.
Factory
hourly
payroll
$11,167,246
Increase due to 3% pay rate increase:
($10,038,877 x 3% = $301,166 increase
due to pay rate increase)
8% increase due to increased production
($10,038,877 + $301,166 = 10,340,043 x
108% = $11,167,246)
–2.77%
($11,167,246-$11,476,319) /
$11,167,246
The increase in factory hourly payroll is attributed to
two primary factors. First, payroll expense would be
expected to increase 3% over the prior year to
account for the 3% wage increase for all employees
(except commissioned salespeople). Second,
payroll expense should increase 8% to account for
the 8% increase in the number of units produced
and sold.
Factory
supervisors’
salaries
$809,400
($785,825 x 103%)
–.15%
($809,400 – $810,588) /
$809,400
All factory supervisors’ salaries received a 3%
increase effective November 1, 2015. There were
no additions to the number of factory supervisors in
the current year.
Office
salaries
$2,050,005
($1,990,296 x 103%)
–.26%
($2,050,005 -$2,055,302) /
$2,050,005
All office personnel received a 3% increase in
salaries effective November 1, 2015. There were no
additions to the number of office personnel in the
current year.
Sales
commissions
$2,249,072
Increase in commissions due to
increased sales:
(5% x $4,618,461 = $230,923)
$2,018,149 + $230,923 = 2,249,072
–5.3%
$2,249,072 -$2,367,962) /
$2,249,072
Sales increased by $6,157,948. Commissions are
only earned on about 75% of the sales. Thus, only
75% of the increase ($4,618,461) would be
considered in the calculation of commission
expense. The fact that commissions are paid one
month after they are earned does not affect
commission expense for the year since management
would have to accrue the expense for commissions
earned but not paid as of October 31, 2016.
(Note: Sales have increased 12% over prior year. Four percent of that is due to an increase in the average selling price. The remaining 8% is attributed to
7-19
7-36 a. PCAOB Auditing Standard 3 indicates that audit documentation
must not be deleted or discarded after the documentation
b. Audit documentation should be sufficient to enable an experienced
auditor, having no previous connection with the audit, to understand
(a) the nature, timing, and extent of the audit procedures performed
c. AU-C 500.A50-52 indicates that the auditor should obtain evidence
7-37 In general, the audit schedule is not set up in a logical manner to show
what the auditor wants to accomplish. The primary objective of the audit schedule
a.
DEFICIENCY
1. Tick mark explanation “tested”
does not indicate specifically what
was done.
Should have separate tick marks meaning:
Agreed to confirmation
Footed
Traced to cash receipts journal
Recomputed, etc.
2. Explanation of some tick marks is
not given.
Explain all tick marks on the same page of
the audit schedule.
3. Classification of long-term portion
indicates no verification.
Recompute portions of notes that are
long-term.
4. Paid-to-date row is confusing.
Column should say “date paid to” and this
should be confirmed.
5. Due dates are missing for
J.J. Co., P. Smith, and Tent Co.
Include due dates on the audit schedule
for these notes.
7-21
7-37 (continued)
The purpose of using an Excel spreadsheet in this problem is to give
the student some experience in preparing a simple audit schedule
computerized is a matter to be decided. The advantage is that the
completed audit work can then be stored and reviewed electronically.
manually as it is performed.
The following solution was prepared with Excel (Filename
P737.xls). The formulas used are self–evident, so no listing is
deserve comment:
1. An advantage of using a spreadsheet program for these
automatically.
2. When auditor tick marks are done by computer, a problem
arises as to how to place them on the worksheet. One could
7-37 (continued)
VANDERVOORT COMPANY
Schedule
N-1
Date
A/C #110 – NOTES RECEIVABLE
Prepared by
JD
01/21/17
12/31/16
Approved by
PP
02/15/17
Account #110 – Notes Receivable
Interest
Date
Interest
Made/
Rate/Date
Face
Value of
Balance
Balance
Receivable
Receivable
Maker
Due
Paid to
Amount
Security
12/31/15
Additions
Payments
12/31/16
12/31/15
Earned
Recd
12/31/16
Apex Co.
c *
6/15/15 /
5% /
5000
None
4000
0
1000
3000
104
175
0
279
06/15/17
None pd.
Tp
r
Tp
<
Ajax, Inc.
c *
11/21/15 /
5% /
3591
None
3591
0
3591
0
0
102
102
0
Demand
12/31/16
Tp
r
Tp
<
r
J.J. Co.
c *
11/1/15 /
5% /
13180
24000
12780
0
2400
10380
24
577
601
0
04/01/21
12/31/16
Tp
r
Tp
<
r
($200/Mo.)
P. Smith
c *
7/26/16 /
5% /
25000
50000
0
25000
5000
20000
0
468
200
268
08/01/18
09/30/16
r
r
<
r
($1000/Mo.)
Martin-Peterson
c *
5/12/15 /
5% /
2100
None
2100
0
2100
0
0
105
105
0
Demand
12/31/16
Tp
r
Tp
<
r
Tent Co.
c *
9/3/16 /
6% /
12000
10000
0
12000
1600
10400
0
162
108
54
02/01/19
11/30/16
r
r
<
r
($400/Mo.)
22471
37000
15691
43780
128
1589
1116
601
f
f
f
f, cf
f
f
f
f, cf
Tp
wtb
Tp
op
wtb
Legend of Auditor’s Tick Marks
f
Footed
cf
Crossfooted
Tp
Traced to prior year audit files
wtb
Traced total to working trial balance
op
Traced total to operations audit schedule – OP6
*
Examined note for payee, made and due dates, interest rate, face amount,
and value of security. No exceptions noted.
c
Received confirmation, including date interest paid to, interest rate, interest
paid during 2016, note balance, and security. No exceptions noted.
r
Traced to cash receipts records
<
Recomputed for the year
7-22
7-23
Cases
McClure Advertising Credits – An insufficient number of confirmations
(four) were sent. The use of alternative procedures is probably acceptable.
However, one credit was confirmed by telephone, rather than by written
confirmation. Although the differences found were immaterial, the auditors
documentation, which is insufficient to support the credits. The placing of
the validity of the credits.
Ridolfi Credits – The auditor obtained an oral confirmation that these
credits were not valid. The client indicated that the auditor’s information was
incorrect, but would not allow the auditor to obtain written confirmation for
Accounts Payable Accrual – The auditors sent 50 accounts payable
confirmations. Whether this is a sufficient number of confirmations is a
matter of auditor judgment. However, the adequacy of the confirmations
as evidence is significantly undermined by the knowledge that the client
the auditors to agree to a lower amount only if additional testing supported
a lower accrued liability.
7-24
7-39 ACL Problem
screen.)
b. The largest and smallest gross pay amounts are $20.13 and
$14,889.77, respectively. (Use Quick Sort.)
c. Total gross pay was $10,097,295.52 (Use the Total command.)
d. The report below shows gross pay by pay period. (Use the
will contain the same departmental totals.
pay_period
gross_pay
COUNT
4646
389248.69
218
4647
387944.03
220
4648
386699.59
214
4649
389000.55
220
4650
387059.43
218
4651
388215.60
222
4652
388056.95
220
4653
390325.51
225
4654
388645.48
227
4655
388845.66
225
4656
390622.15
228
4657
387892.38
226
4658
389763.65
227
4659
388177.38
226
4660
388229.88
226
4661
388814.15
227
4662
388177.38
226
4663
388289.88
226
4664
388274.88
226
4665
388267.38
226
4666
388184.88
226
4667
387719.88
226
4668
387368.40
221
4669
387306.31
221
4670
389296.25
217
4671
386869.20
217
7-25
7-39 (continued)
Filter: Gross Pay – Deductions < > Net Pay.)
pay_period
employee_number
gross_pay
deductions
net_pay
4646
0000125053
2294.50
573.38
1720.12
4647
0000126112
1103.47
165.49
937.78
4649
0000127262
753.06
112.95
640.05
4649
0000127346
1383.06
345.75
1037.25
4651
0000126713
1139.33
284.82
854.45
4652
0000125653
932.33
139.84
792.43
4653
0000125170
1496.33
374.07
1122.2
4653
0000125703
1509.10
377.25
1131.75
4654
0000127185
903.10
135.45
767.55
4655
0000125399
1130.33
282.57
847.7
4656
0000126030
1060.00
158.85
900.15
4656
0000126038
1572.27
393
1179
4670
0000126962
1151.50
288.38
865.12
4670
0000126976
984.83
147.72
837.05
records.
g. Type of evidence:
Part.
Evidence
a.
Inspection,
Recalculation
b.
Inspection,
Recalculation
c.
Recalculation
d.
Determine gross pay by pay period
Recalculation
e.
Recalculation
f.
Inspection