NEED HELP WRITING THIS ASSIGNMENT

IT NEEDS TO BE IN BEFORE 9PM, MON. DEC 3, 2012  EASTERN STANDARD TIME. MUST BE TOTALLY DIFFERENT.

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AUDIT PROGRAM DESIGN

AUDIT PROGRAM DESIGN

Audit Program Design Part III

Jocelyn Olivares

University of Phoenix

ACC546

Professor Theresa Robinson

December 1,

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012

Introduction

In order to conduct a substantial audit of Apollo Shoes the auditor must obtain a sufficient understanding of the entity and the entity’s environment, including the internal control. The understanding of the entity and its environment helps the auditor in a variety of ways throughout the audit, including establishing materiality, considering appropriateness, and designing audit procedures that can facilitate the growth of Apollo Shoes. Before the auditor can begin the process of conducting the audit of the inventory and warehousing cash cycles, the auditor must prepare the audit plan and program for Apollo Shoes.

Developing the audit strategy and plan aids the auditor in determining the necessary resources to perform the engagement. The auditor must develop a plan in mind that will reduce audit risk to an acceptable level for the inventory and warehousing cash cycle. The audit plan should include a description of nature, timing, and extent of the planned risk assessment procedures. The audit plan and program significantly affects the types and extent of further audit procedures to be used by the auditor in determining whether the financial statements are fairly stated in accordance with the US GAAP. The auditor should consider audit risk in relation to the individual account balances, classes of transactions, and disclosures and relevant assertions of the overall level of the financial statements.

These further audit procedures include test of controls, substantive tests of transactions and analytical procedures with the evidence collected from these procedures forming part of the auditor’s sufficient and appropriate evidence to support his audit opinion and report in accordance with the US generally accepted auditing standards. With designing the test of controls and substantive tests of transactions for the each of the two cycles, Apollo Shoes, Inc.’s internal control over these accounts must first be understood by the auditor; the auditor assesses the planned control risk for that account. Below illustrates the general procedures and methodology in designing tests of controls and substantive tests of transactions for any account that is audited:

1. Understand the internal control over that cycle or account

2. Assess the planned control risk for that cycle

3. Determined the extent of testing controls which is based on the planned reliance on the controls over financial reporting for that account of the audit client

4. Design tests of controls and substantive tests of transactions for the account to meet transactions-related audit objectives.

The design of tests of controls and substantive tests of transactions involve determining the specific audit procedures to be performed, the sample size, items to be selected and included in the sample, and timing of the tests.

Inventory and warehousing Cycle

Test of controls

The auditor in charge has to determine the control procedures over the inventory and warehousing cycle of Apollo Shoes, Inc. and their deficiencies in designing the test of controls.

Substantive Tests of Transactions

For each transaction-related audit objectives – occurrence, completeness, accuracy, posting and summarization, classification and timing – a substantive test or more must be associated. These tests are used to examine the actual details that make-up the various account balances and disclosures.

Analytical Procedures

According to AU 329, requires that analytical procedures be performed in planning of the audit, as well as an overall review nearing the completion of the audit. These procedures serve to provide the auditor additional assurance that the account is presented fairly in accordance with generally accepted accounting principles. The table below shows the test of controls, substantive tests of transactions, and analytical procedures for a couple of the transaction-related audit objectives of Apollo’s inventory and warehousing cycle.

Transaction-Related Audit Objectives | Key Internal Controls | Tests of Controls | Substantive Tests of Transactions |

Recorded inventory acquisition transactions are accurate (accuracy) | Calculations and amounts are internally verified | Examine indication of internal verification | Compare recorded transitions in the inventory acquisitions journal with the vendor’s invoice, receiving report, and other supporting documents both internally and externally sourced. |

| Batch totals are compared with summary reports for inventory purchases | Examine file of batch totals for initials of data control clerk, then compare the batch totals with the summary reports | Recomputed the accuracy of the vendor’s invoice. |

Cash Cycle

Test of controls

For each of the identified internal control and control deficiencies over financial reporting of cash, one or more tests of controls must be designed (Arens, Elder & Beasley, 2008, p. 453). The tests of controls are used either to test the effectiveness of the design or the operation of the control. The approach should include:

1. Inquiries of appropriate personnel

2. Inspection of documents and reports

3. Observation of the application of controls

4. Re-performance of the control by the auditor

Substantive tests of transactions

The substantive tests of transactions for cash are related to the transaction-related audit objectives identified in the test of controls. These tests are designed to aid the auditor in determining whether there are any monetary misstatements for each objective in a cash transaction.

Analytical Procedure

Analytical procedures on the other hand involve the comparison of the financial statements information presented to determine any potential misstatement with that of the previous period. The table below presents the test of controls and substantive tests of transactions for cash receipts of Apollo Shoes Inc. as adopted from the test of controls and substantive tests of transactions designed by Arens, Elder and Beasley for Hillsburg Hardware Co. (2008, p. 463).

Transaction-Related Audit Objectives | Key Existing Controls | Test of Controls | Deficiencies | Substantive Test of Transactions |

Recorded cash receipts are for funds actually received by Apollo (occurrence) | Accountant independently reconciles bank account. | Observe whether the accountant in charge really does reconcile the bank accounts | | Review Apollo’s cash receipts and master file for unusual transactions and amounts.Prepare a proof of cash receipts |

Cash received is recorded in the cash receipts journal (completeness) | Prelisting of cash receipts is prepared | Observed prelisting of cash receipts | | Obtain prelisting of cash receipts and trace amounts to the cash receipts journal, testing from names, amounts and dates. |

In closing, the above audit objectives and test of transactions, the above procedures must be revised based on the actual audit plan and program designed for Apollo Shoes, Inc.

References

Arens, A., Elder, R. & Beasley, M. (2008). Auditing and Assurance Services: An Integrated Approach (12th ed). New York: Pearson Education.

Louwers,T.J., & Reynolds, J.K. (2002 ). Apollo shoes casebook. New York, New York:

McGraw-Hill.

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