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.

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. Please no cursive writing.

Answer 1

The Audit Program for auditing Accounts Payable will include:

Initial Procedures

1. Obtaining an in-depth understanding of the business - Assessing the importance of accounts payable for the business. What are the normal credit terms in the Industry, technical jargons and major players in the Industry for the supply of raw materials.

2. Risk Assessment - This will involve assessing whether or not the business depends on certain suppliers more than it should. What are the terms of its purchase agreements? etc.

Analytical Review of the Head

Analytical procedures to be performed on the past year data and ratio analysis has to be performed calculating various ratios such as AP Turnover ratios etc. Actual to Budget comparison also has to be done

Audit Procedures

• Vouching of AP vouchers and confirm whether they are recorded in the books as per company policy
• Finding any unrecorded liability, year-end transactions and adjustment entries.
• Confirmation of balances with the suppliers shall be done to ensure AP are recorded at true values.
• Sample voucher confirmations for mathematical accuracy
• COnfirm the actual receiving reports to ensure that actual goods are received for the AP recorded
• Rechecking all the payments made to the suppliers and bank confirmations for the same
• Whether the discount received has been properly recorded.
• Ensure whether credit notes for goods returned has been received and accounted for.

Presentation & Disclosure

The auditor shall ensure whether all the Accounts Payable have been disclosed and presented as per the applicable Accounting policies and procedures. Special attention shall be given for accounts payable to related parties.