I primarily need help with part C of the accounts payable audit. Part A: Finding
ID: 2395453 • Letter: I
Question
I primarily need help with part C of the accounts payable audit.
Part A: Findings and Recommendations for Management
What recommendations do you have for management, based on the audit information for B, P, & J Truck Repair Service?
Recommendations should include:
· Purchases and accounts payable:Explain the results of the analytic procedures related to the accounts payable audit and what those results indicate.
· Internal control:Identify management's assertions regarding the internal controls and the effectiveness of each internal control within human resources.
· Production control:Identify the control objectives. Test the control activities (or procedures) of the parts inventory reporting system and explain the strengths and weaknesses.
Scenario
B, P, & J Truck Repair Service is a heavy-duty truck maintenance shop that performs various services for its customers. The company has two categories of purchases, stock purchases for ordinary maintenance and special purchases for major repairs. Stock purchases include shop supplies (shop towels, cleaning products, et cetera), general parts (oil, brake fluid, coolant, et cetera), and high-demand specialty parts (truck parts that are common to many vehicles). Specialty purchases include low-demand specialty parts (truck parts that are specific to a vehicle) and equipment (tools, truck lift, air compressors, et cetera). Stock purchases are estimated and made in advance of demand. Specialty purchases are only ordered on an “as needed” basis for specific parts or equipment.
Accounts Payable Audit
You have been assigned to perform the audit procedures related to the accounts payable balance for the audit of the 2016 financial statements. After reviewing and testing internal controls for accounts payable, you determine that the control risk is fairly low. Below is the information that you have requested and received from the company.
Table 1: ACCOUNTS PAYABLE LEDGER BALANCES AS OF DECEMBER 31, 2016
Accounts
2014
2015
2016
Bass Truck Parts
$32,000
$35,000
$32,800
Inland Wholesale
10,400
10,900
0
Hunter Tire
11,200
12,000
6,200
Air Brake Specialty
40,000
42,410
57,600
Trucker’s Haven
19,200
17,600
8,000
BKS Fleet Supply
38,400
53,400
92,000
Made in USA Parts and Accessories
0
4,400
0
Table 2: PURCHASES SUBSIDIARY LEDGER AS OF DECEMBER 31, 2016
Purchases
2014
2015
2016
Stock Purchases
$840,000
$849,000
$744,000
Special Purchases
1,570,000
1,690,000
1,177,000
Table 3: COST OF GOODS SOLD LEDGER BALANCE AS OF DECEMBER 31, 2016
Goods
2014
2015
2016
Cost of Goods Sold
$1,864,000
$2,105,000
$1,752,000
Additional Information:
· All purchases are made on credit.
· The 2014 beginning balance for accounts payable was $159,000.
Instructions for Accounts Payable Audit
Perform analytical procedures for accounts payable of B, P, & J Truck Repair Service in the following manner:
(a)Calculate and list all necessary figures and comparisons to analyze accounts payable.
(b)Explain what the result of each may indicate for the balance in accounts payable.
(c)Using the information for B, P, & J provided above and the results of analytical procedures performed, explain the substantive audit procedures, audit evidence, and related management assertions that you would need for the test of details of the accounts payable balance.
Accounts
2014
2015
2016
Bass Truck Parts
$32,000
$35,000
$32,800
Inland Wholesale
10,400
10,900
0
Hunter Tire
11,200
12,000
6,200
Air Brake Specialty
40,000
42,410
57,600
Trucker’s Haven
19,200
17,600
8,000
BKS Fleet Supply
38,400
53,400
92,000
Made in USA Parts and Accessories
0
4,400
0
Explanation / Answer
a) necessary figures and comparisns for accounts payable are:-
b)As all purchses are on credit basis, in above table we can see that accounts payable decreased at the close of 2014 and then in the following years it increased.It clearly indicates that over the years purchases are increasing.Although cogs has gone down in 2016 but purchases have increased
c)Substantive Audit Procedure:- 1The auditor should check the book balance of every component of accounts payable.
2 The auditor can ask for external confirmation from parties concerned
3.In case the management doesn't allow external confirmation ,or in any othe case auditor can ask for written representation from management.
4. Auditor should verify the purchase invoices as the cogs have gone down in 2016.
Audit evidence:- It refers to the information gathered to reach a conclusion.
1The purchase order book is audit evidence that auditor can verify.
2Purchase invoice.
3In case of payment to creditors the bank statement
4 External confirmation recd from third parties
5 Bank statements to confirm payment
6 Accounts of creditors of goods
management assertions:-
1Accuracy-In recording the transaction
2completeness-of entriesa and accounts
3authorisation -for purchase of goods.
4internal control-over preparation and maintenance of accounts for audit.
accounts payable 2014 2015 2016 opening 159000 151200 175710 closing 151200 175710 196600