I need help with the audit case below. Please see attachment

BILTRITE PRACTICE CASE

Module XIV: Working Trial Balance Upon completion of substantive audit testing, the auditor should post all audit adjustments and reclassification entries to the working trial balance and extend the audited balances. The extended balances then form the nucleus for the audited financial statements.

Selected analytical procedures also should be applied at the conclusion of the audit. The results may be compared with those developed during the audit- planning phase. This approach provides added support for audit conclusions contained in the documentation.

Derick has asked you to post the adjustments and reclassifications and to per- form the review-phase analytical procedures.

Requirements 1. The instructor’s CD contains a file labeled “AJE” (adjusting journal entries).

It contains all of the audit adjustments and reclassifications that you devel- oped in prior modules of this practice case. At this time, your instructor will supply you with a printout of this file. Review the adjustments, which will be presented to the client as proposed audit adjustments. Derick has set the following materiality thresholds: Income statement $ 435,000 Balance sheet $1,542,270

Given these thresholds and referring to the proposed audit adjustments and reclassifications, determine whether the potential adjustments equal or exceed the income statement or balance sheet materiality threshold in the aggregate. Treat income overstatements and income understatements sepa- rately. Do not net understatements against overstatements. That is, if aggregate overstatements are $600,000 and aggregate understatements are $500,000, the adjustments should be proposed to Biltrite management, inasmuch as both exceed the income statement materiality threshold.

2. Retrieve the file labeled “WTB.” Post the adjustments and reclassifications to the working trial balance. Observe the following rules in making your postings: a. Post account increases as positive amounts, and post account decreases as

negative amounts; b. Postings are in “thousands of dollars,” whereas the adjustments and

reclassifications are rounded to the nearest dollar. Therefore, in posting the adjustments and reclassifications, round to the nearest $1,000.

c. Enter AJE numbers as text by typing a single quote before the number “1” so that they do not get included in the final balance.

d. Do not foot the adjustments and reclassifications columns (they will automatically be reflected in the audited column as you post them).

3. Save your file under the title “WTB,” then print it. 4. Retrieve the file labeled “AUDBS.” Using your printout of the working

trial balance, enter the amounts from the audited column in the 2009 balance sheet. Calculate the percentages of individual balance sheet items and components relative to totals for 2009.

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5. Calculate the new ratios for 2009 based on the audited financial statements. What is the purpose of applying analytical procedures in the evaluation and review phase of the audit? Is it important to develop expectations as part of performing these final analytical procedures?

6. Print the comparative audited balance sheets together with the related ratios. Compare them with the balance sheets and ratios that you devel- oped and printed in requirement (5b) of Module I. What conclusions can you draw regarding the comparison?

7. Retrieve the file labeled “Budget,” which you reviewed as part of your assignment in Module I. You will recall that the purpose for this review was to identify significant budget variances that could be the result of under- or overbudgeting, misstatements in recording data, or intentional misstatement. The auditor, of course, is concerned with the latter two possibilities. a. Substitute the audited amounts from your adjusted working trial balance

for the unaudited figures in the “Actual 12/31/09” column. Save your file, as revised, under a new file name (e.g., “Biltbudg”), so as not to lose the original Module I file. Print the revised budget/actual comparison.

b. Do significant variances still exist? If so, are you satisfied that the audit has resolved the causes of the significant variances? (Compare the var- iances resulting from this analysis with those calculated in Module I.)

c. If you continue to have concerns about certain variances, what additional evidence-gathering and evaluation procedures do you suggest?

Module XIV: Working Trial Balance 859

Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.