The key process cycle that I have chosen for Loblaws Inc is the Sales and Collection cycle. I believe the high volume of sales that the company has and many different accounts with small balances ranging from cents to millions increases the engagement risk while planning and performing an audit.
The accounts included in this cycle are:
1. Gross sales = cash sales + sales on account → Account balance $ 32,371,000,000
2. Accounts receivable ending balance= Beginning balance +sales on Account - cash receipts -sales returns and allowances- charge of uncollectible account
Account balance = 618,000,000; Credit card receivables balance = 2,538,000,000
3. Cash in bank (cash sales + cash receipts-cash discounts)
Cash balance = 515,000,000; Cash and cash equivalent balance = 2,260,000,000
4. Sales return and allowances→ in the detailed Income Statement of Loblaws Inc this account is not present. I would assume that the sales return and allowances are very insignificant for the company or they are already incorporated in the revenue amount (gross sales – returns)
5. Bad debts balance = (...
In order for Jim Turin & Sons, Inc to have used this method of accounting it would have had to match the cost of the merchandise with the revenue earned from the sale. Using the matching of revenue and cost the company would have had to have kept an actual inventory and maintained records of the costs associated with said inventory. Since the costs are not immediately deducted under the accrual method they are deferred to the year when the merchandise is
Arens, Alvin A., Elder, Randall J., and Beasley, Mark S. (2012). Auditing and Assurance Services:
In order to determine the value of operations, and using proforma income statement and balance sheet statement, Cash flow statement was formulated for the next 5 years. The Account Receivables plus the Inventory minus the Account Payable was determined as Net Operating Working Assets. An organization cost of 0,000 was amortized over the 5-year period.
1. As of December 31, Mesa Company has a balance of $5,000 in accounts receivable of which $500 is
Rittenberg, Larry, Bradley Schwieger, and Karla Johnstone. Auditing. 6th ed. Mason: Thomas South-Western, 2005. 10-40.
Under the accrual basis of accounting, expenses are matched with revenues on the income statement when the expenses expire or title has transferred to the buyer, rather than at the time when expenses are paid. The balance sheet is also affected at the time of the expense by a decrease in Cash (if the expense was paid at the time the expense was incurred), an increase in Accounts Payable (if the expense will be paid in the future), or a decrease in Prepaid Expenses (if the expense was paid in
Objectivity also needs to be evaluated to make sure the internal audit is reliable. The internal audit needs to be free of conflicting responsibilities as well
Marshall, M.H., McManus, W.W., Viele, V.F. (2003). Accounting: What the Numbers Mean. 6th ed. New York: McGraw-Hill Companies.
Accounts Receivable has good separation of duties and strong internal controls such as control numbers and reconciliations to sales and bank statements. One weakness in the Accounts receivable system is the accounting supervisor approves summary entries and reconciles the general ledger account, which could indicate a weakness with segregation of duties. We recommend that the controller approves of summary entries to segregate these duties.
This pronouncement required the deferral method of accounting for income taxes. When the accounting net income exceeded taxable net income, balancing credit should be recognized, when the taxable net income exceeded the accounting, a balancing debit should be recognized. This was considered a deferred credit and a deferred debit. Deferred charges and credits were default classification and were placed on the Balance Sheet in what was called "no man's land," or some undefined region, between liabilities and owner's equity for deferred credits and between assets and liabilities for deferred charges. Under APB Opinion #11 it was believed that the balancing credits and debits would eventually reverse and cancel out and therefore it was to be treated as a temporary measure.
The company that we are auditing is a regional convenient store chain called Wawa. Many local people think that the store is a cash cow that cannot do anything to hurt its profits or market share. The truth is, the company is large and successful but it is not invincible and for many reasons. The company is privately traded, meaning it cannot issue common stock to help itself get out of hard times financially. Wawa is local with stores in New Jersey, Delaware, Pennsylvania, and Virginia. Although Wawa has a good reputation with local people, out of town people are not as aware. Fortunately, Wawa distributes products that are inelastic in nature. Gasoline, food, and tobacco products for most people, no matter what the condition of the economy is or how much money they cost, they will still buy them.
...ction. Product development, service delivery, materials purchasing, product design, and manufacturing operations must all be included. I Auditors will look for continuous improvement in the system. These improvements can include better education of employees, better communication of ideas from and to employees, better reporting of environmental impacts within the company, and improved identification of environmental aspects. ISO 14000
Auditing has been the backbone of the complicated business world and has always changed with the times. As the business world grew strong, auditors’ roles grew more important. The auditors’ job became more difficult as the accounting principles changed. It also became easier with the use of internal controls, which introduced the need for testing, not a complete audit. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. Computers played an important role of changing the way audits were performed and also brought along some difficulties.
This shows the total balance of credits and debits are equality after the temporary accounts had being zero and didn’t list on the post-closing trial balance. This is the end of accounting cycle and it will start again with the first step in the next accounting