Question

Assume you are the senior accountant on an audit engagement of a fictitious business, Pine Street Company (PSC). Assume the instructor is the engagement partner. You are to prepare an audit program for PSC. The firm manufactures and sells bicycles. The audit program must be in one of the following areas of the business: accounts receivable and revenues; inventories and costs of goods sold; accounts payable; payroll; or property, plant, and equipment.

Week 6 - Submit an audit program for one of the following areas of the fictitious business, Pine Street Company (PSC): accounts receivable and revenues; inventories and costs of goods sold; accounts payable; payroll; or property, plant, and equipment.

Answer 1

First the auditor needs to select an area for testing. Suppose we have selected "accounts receivable and revenues"

Then the following attributes need to tested for that particular area.

1) Occurence

2) Accuracy

3) Completeness

4) Classification

5) timing

The next step is to design various tests to assess quality of the above mentioned  assertions. This design of planning and selection of different tests based on the information available with the client for an area is called "audit program".

Now let us design a sample audit program for "accounts receivable and revenues"-

1) First see how the sales/ accounts receivables are being recorded in the books. This can be done by looking at the chronology of sales (direction).

2) Now the auditor will start tracing back accounts receivable and sales present in general ledger to (this is done only for select transactions/balances based on materiliaty concept)

a) Accounts receivable file (check date and time)

b) Sales invoices - check all data points date time and names

c) Check bill of lading

d) Quantitative aspects of sales like quantity and amounts of sales and approvals

e) Depending upon the availability check for other documentation like duplicate invoices and customer order number and sales order.