Pinnacle Manufacturing: Part VI 50 marks
Part VI of the Pinnacle Manufacturing case covers analytical procedures and tests of details of balances for accounts payable.
Assume that the understanding of internal controls over acquisitions and cash payments, and the related tests of controls and substantive tests of transactions support an assessment of a low control risk. The accounts payable listing at year-end shows 519 accounts, making up the accounts payable balance of $11,277,989 at 31 December 20X2. Accounts payable balances between $50,001 and $200,000 total $4,075,355 and balances less than $50,000 are $4,792,683.
1. List the relationships, ratios and trends that will provide useful information about the overall reasonableness of accounts payable. Consider income statement accounts that affect accounts payable in selecting the analytical procedures. (6 marks)
2. Prepare a substantive audit programme for accounts payable in a performance format. Group the procedures under the headings General, Ending Balances, Cut off and Disclosure & Classification. (10 marks)
Note: Use Figure 12.14 (page 427) as an example of the format of a balances audit programme.
3. Assume that a) assessed control risk had been high rather than low for each transaction-related audit objective; b) inherent risk was high for each balance-related audit objective; and c) analytical procedures indicated a high potential for misstatement. What would be the effect on the audit procedures and sample sizes in the audit programme in 2? (5 marks)
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This question was asked on May 17, 2010 and answered on May 17, 2010.
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