Complete Audit and Subsequent Events

Over the past year, it has been determined that there may be some control issues in each of the major transaction cycles. The following is a chart of each cycle with the areas of concern identified. Transaction Cycles/Areas of Concern

The procurement and payment cycle:

There were 4,000 purchase orders that totaled $55 M for raw material. There is concern that not all purchases were completed using formal purchase orders, receipts did not match payment authorizations, and purchase orders were missing.

The sales and cash receipt cycle:

There were 15,000 invoices totaling $122 M in sales. Unauthorized discounts applied to invoices, credit terms applied to invoices may be incorrect, and unaccounted for invoice sequence numbering may be present.

• Determine the appropriate methodology for designing tests of controls and substantive tests of transactions.

Submit a 1-page chart with the following column headings:

In preparation for the year-end audit at Bovar Company, Create a presentation to management for its approval. Complete the following:

• Each member should present the methodology that he or she developed for his or her transaction cycle to the group, which should address the aforementioned control issues.
• The team should agree on how to address the identified control issues.
• The team should provide outlines regarding the methodology for the 2 major transaction cycles above for the following:
  • Designing tests of controls
  • Designing substantive tests of transactions

All information should be compiled into one cohesive presentation 8-10 slides with speaker notes/APA format Additional Notes: You have to design internal controls, test of controls, and substantive tests. You must identify the management objectives, that relate to controls that relate to the test of control and substantive tests. Then you must discuss the methodology.

During the audit, the following occurred:

Bovar Company’s management restricted the auditors by not allowing them to audit Overall Manufacturing Company’s financial statements. Management changed the inventory accounting from first in, first out (FIFO) to last in, first out (LIFO) and did not accurately revalue the inventory. The lead auditor was the cousin of Bovar Company’s chief financial officer (CFO).

The American Institute of Certified Public Accountants (AICPA) professional standards provide uniform wording and format for the audit report. Consider the above events and write a 1-page audit report for Harrison that includes all 7 parts of a standard audit report, as follows:

• Report title
• Audit report address
• Introductory paragraphs
• Scope paragraph
• Opinion paragraph
• Name of the Certified Public Accountant (CPA) firm
• Audit report date At the end of the audit, the audit team completed the fieldwork and signed the auditor report on March 20, 2014. Harrison sold some of assets in the rectangular heat exchangers line on March 31, 2014. The team is concerned about this event transaction occurring after December 31, 2013 that may affect the 2013 financial statements. Discuss the following questions in a 1-page document:
• What general types of subsequent events require consideration and evaluation by the management and the audit team?
• Describe the financial statement effect of the subsequent event that is described above. (Please include all references in APA format)

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