Gerryl P.

Gaid, BS Accountancy IV-A; Pinnacle Manufacturing Part VII

a. Relationships, ratios and trends:

Test of Details of Balances Audit Program for Pinnacle Manufacturing 1.

1.
1. Re-compute the total accounts payable and trace the balance to the general ledger.
1.
2. Examine the vendors statements and reconcile it and traced on the ending balance of 1.
1.
the accounts payable. This involve the selection of the sample.
1.
1.
3. Obtain number of last receiving report issued as part of physical observation of
1.
inventory.
1.
4. Examine unusually large cash disbursements. 1.
5. Review list and master files for related parties, notes, long-term payables and debit 1.
balances. 1.
1.
6. Review financial statements to assure the segregation of the related parties, notes, 1.
long-term payables. 1.
Relationship:
The comparison of the current and previous listing of accounts payable.
2. Ratios:
i Gross profit ratio
ii Accounts payable turnover ratio
3. Trends:
i. Purchases per month
ii. Gross profit per month
iii. Operating expenses per month
b.

b. i. Where assessed control risk are high rather than low for each transaction-related audit objectives, audit
procedures would be conducted extensively and sample size would be increase.
ii. Where assessed inherent l risk are high rather than low for each transaction-related audit objectives, audit
procedures would be conducted extensively and sample size would be increase
iii. Where analytical procedures indicated a high potential misstatement, audit procedures would be
conducted extensively and sample size would be increase
 Misstatement in
Related Accounts

Books Timing Misstatemen

Amount Over Difference: t Other Balance Income Brief
Balance Confirmed Explanation
(Under) No in Accounts Sheet Statement
Per by Vendor Amount Misstatemen Payable Misstatement Misstatement
Books
Vendor Confirmed t o/s (u/s) o/s (u/s) o/s (u/s)
Key Accounts
(>$200,000)
FOB Origin error:
FiberChem $739 049.89 $825 549.89 (32 500.00) (32 500.00) (32 500.00) Dr. Inventory
Cr. A/P
Total 739 049.89 $825 549.89 (32 500.00) - (32 500.00) (32 500.00) -

Accounts in Stratum
$50,001 - $200,000
Mobil $93 210 $131 022 $(37 812) $(37 812) Time difference
Unrecorded A/P (Purchases
Norris $88 315 $205 611 $(117 296) $(117 296) $117 296
and A/P)
Pinnacle recorded FOB
Remington $123 411 $123 411 $53 529 $53 529
shipment before received
Advent $59 250 $59 250 $(7 500) $(7 500) $(7 500) B/S fixed asset error
Total $356 686 $519 294 $(162 608) $(37 812) $(71 267) $(7 500) $(63 767)
Accts in Stratum less
than or equal to $50000
Timely difference-payment in
Fuller $ 32 470 $39570 $(7,100) $ (7,100)
transit
Total $ 32 470 $39570 $(7,100) $ (7,100) - - -
D.

PINNACLE MANUFACTURING ANALYSIS OF TRADE ACCOUNTS PAYABLE DECEMBER 31, 2013

 Estimate of Misstatement in the Income Statement

Accounts in Stratum $50,000-$250,000 $63,767

Dollar Sample Stratum $50,000-$250,000 $2,660,878
Dollars in Pop Stratum $50,000-$250,000 $6,078,646
Income Statement Misstatement $145,672
Estimate of Sampling Error $100,000
Total Estimate $245,672

Estimate of Misstatement in Accounts Payable

Misstatements in Key Items ($32,500)
Misstatement in Stratum $50,000-$200,000 ($75,000)
Dollars Sampled $646,325
Dollars in Pop Stratum $50,000-$200,000 $6,078,646
Point Estimate ($705,370)

G. The recorded balance in accounts payable for Pinnacle Manufacturing as it affects income statement and balance
sheet is fair and reasonable. (Based on Calculation F)