The Preliminary Analytical Procedures Worksheet

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Zvan11

Business Finance

Description

In this mini-case you will perform the Preliminary Analytical Procedures required as part of audit planning. For ease your audit manager has already organized the workpapers and completed the planning materiality worksheet.

Instructions:
Read the planning materiality memo from your team member (Taylor Crump), then read the steps in the audit program found on Work Paper B-0 and familiarize yourself with work paper B-1. Complete all the steps on the audit program.

Be sure to document your work using the designated tick marks. The tick mark legend is located at the bottom of each work paper.

When you are finished with the PAP workpaper, enter your initials in the box in the top right marked "Prepared By".

This entire completed workbook should be renamed as PreAP_Firstname_Lastname and uploaded to the D2L dropbox.

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Apollo Preliminary Analytical Procedures Audit Mini-Case In this mini-case you will perform the Preliminary Analytical Procedures required as part of audit planning. For ease your audit manager has already organized the workpapers and completed the planning materiality worksheet. Instructions: Read the planning materiality memo from your team member (Taylor Crump), then read the steps in the audit program found on Work Paper B-0 and familiarize yourself with work paper B-1. Complete all the steps on the audit program. Be sure to document your work using the designated tick marks. The tick mark legend is located at the bottom of each work paper. When you are finished with the PAP workpaper, enter your initials in the box in the top right marked "Prepared By" This entire completed workbook should be renamed as PreAP_Firstname_Lastname and upload. Apollo Shoes, Inc. AUDIT PLAN—Preliminary Analytical Procedures FYE 12/31/2020 Workpaper Reference 1 2 3 Complete engagement materiality memo. Obtain 2019 audited trial balance and 2020 unaudited trial balance. Create Preliminary Analytical Procedures (PreAP) workpaper that calculates absolute and percentage change over the prior year for each line item. Cross reference all balances on PAP workpaper to TB and foot amounts. Investigate any percentage change > 10% or over Planning Materiality (see A-5). 4 5 Select three important changes noted on the PreAP, and include them on the deliverable for your senior to review. For each change, specify two hypotheses that could be driving each change. A-5 Related Assertion (s) B-0 Performed by TC Comments Please comment on whether you think materiality seems reasonable and why? You will select only three changes to investigate (see step 5). However, this step would be completed in a normal audit. Apollo Shoes, Inc Trial Balance (Audited) 31-Dec-19 Account ID 10100 10200 10300 10400 11000 11500 12000 12300 14100 14200 14300 14400 14700 15000 15100 15200 17000 19000 19900 20000 23100 23200 23300 23350 23400 23500 23600 23700 23800 23900 24100 24200 24700 27000 39003 39004 39005 40000 41000 42000 45000 46000 47000 50010 57500 60000 61000 PBC A-1 Account Description Debit Cash on Hand $1,987.28 Regular Checking Account $198,116.52 Payroll Checking Account $0.00 Savings Account $3,044,958.13 Accounts Receivable $16,410,902.71 Allowance for Doubtful Accounts 0 Inventory - Spotlight $18,825,205.24 Reserve for Inventory Obsolescence 0 Prepaid Insurance $743,314.38 Prepaid Rent $200,000.00 Office Supplies $7,406.82 Notes Receivable-Current 0 Other Current Assets 0 Land $117,000.00 Buildings and Land Improvements $623,905.92 Machinery, Equipment, Office Furniture $433,217.10 Accum. Depreciation 0 Investments $572,691.08 Other Noncurrent Assets $53,840.59 Accounts Payable 0 Sales Tax Payable 0 Wages Payable 0 FICA Employee Withholding 0 Medicare Withholding 0 Federal Payroll Taxes Payable 0 FUTA Tax Payable 0 State Payroll Taxes Payable 0 SUTA Tax Payable 0 FICA Employer Withholding 0 Medicare Employer Withholding 0 Line of Credit 0 Current Portion Long-Term Debt 0 Other Current Liabilities 0 Notes Payable-Noncurrent 0 Common Stock 0 Paid-in Capital 0 Retained Earnings 0 Sales 0 Sales Returns $4,497,583.20 Warranty Expense $1,100,281.48 Income from Investments 0 Interest Income 0 Miscellaneous Income 0 Cost of Goods Sold $141,569,221.61 Freight $4,302,951.46 Advertising Expense $897,140.01 Auto Expenses $208,974.39 Credit 0 0 0 0 0 $1,262,819.88 0 $3,012,000.00 0 0 0 0 0 0 0 0 $164,000.00 0 0 $4,633,118.09 $0.00 $29,470.32 $1,318.69 $583.99 $6,033.01 0 $2,815.47 0 $1,318.69 $583.99 $10,000,000.00 0 0 0 $8,105,000.00 $7,423,000.00 $2,219,120.65 $246,172,918.44 0 0 $0.00 $204,302.81 $0.00 0 0 0 0 62000 64000 64500 65000 66000 67000 68000 70000 70100 70110 70120 71000 72000 73000 74000 77500 78000 78500 78510 80000 Research and Development Depreciation Expense Warehouse Salaries Property Tax Expense Legal and Professional Expense Bad Debt Expense Insurance Expense Maintenance Expense Utilities Phone Postal Miscellaneous Office Expense Payroll Tax Exp Pension/Profit-Sharing Plan Ex Rent or Lease Expense Administrative Wages Expense Interest Expense Income Tax Expense - Federal Income Tax Expense - State Loss on Legal Settlement $31,212,334.17 $133,000.00 $4,633,383.82 $80,495.32 $3,605,133.96 $1,622,425.99 $853,942.65 $61,136.04 $135,642.99 $76,373.78 $128,033.21 $17,023.27 $1,550,989.06 $3,000,000.00 $2,603,485.87 $16,875,305.98 $875,000.00 $2,365,000.00 $429,000.00 $19,172,000.00 $283,238,404.03 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $283,238,404.03 Apollo Shoes, Inc Preclosing Trial Balance 31-Dec-20 PBC A-2 Account ID Account Description Debit Amt 10100 Cash on Hand $ 2,275.23 10200 Regular Checking Account $ 557,125.92 10300 Payroll Checking Account 10400 Savings Account $ 3,645,599.15 11000 Accounts Receivable $51,515,259.98 11400 Other Receivables $ 1,250,000.00 11500 Allowance for Doubtful Accounts 12000 Inventory $67,724,527.50 12300 Reserve for Inventory Obsolescence 14100 Prepaid Insurance $ 3,424,213.78 14200 Prepaid Rent 14300 Office Supplies $ 8,540.00 14400 Notes Receivable-Current 14700 Other Current Assets 15000 Land $ 117,000.00 15100 Buildings and Land Improvements $ 674,313.92 15200 Machinery, Equipment, Office Furniture$ 2,929,097.13 17000 Accum. Depreciation 19000 Investments $ 1,998,780.39 19900 Other Noncurrent Assets $ 53,840.59 20000 Accounts Payable 23100 Sales Tax Payable 23200 Wages Payable 23300 FICA Employee Withholding 23350 Medicare Withholding 23400 Federal Payroll Taxes Payable 23500 FUTA Tax Payable 23600 State Payroll Taxes Payable 23700 SUTA Tax Payable 23800 FICA Employer Withholding 23900 Medicare Employer Withholding 24100 Line of Credit 24200 Current Portion Long-Term Debt 24700 Other Current Liabilities 27000 Notes Payable-Noncurrent 39003 Common Stock 39004 Paid-in Capital 39005 Retained Earnings 40000 Sales 41000 Sales Returns $11,100,220.89 42000 Warranty Expense $ 1,158,128.47 45000 Income from Investments 46000 Interest Income 47000 Miscellaneous Income 50010 Cost of Goods Sold ############# 57500 Freight $ 4,240,263.09 60000 Advertising Expense $ 1,036,854.01 61000 Auto Expenses $ 210,502.80 62000 Research and Development $ 528,870.44 64000 Depreciation Expense $ 446,000.00 64500 Warehouse Salaries $ 4,720,715.56 65000 Property Tax Expense $ 99,332.45 66000 Legal and Professional Expense $ 4,913,224.45 67000 Bad Debt Expense 68000 Insurance Expense $ 36,106.92 70000 Maintenance Expense $ 35,502.87 70100 Utilities $ 137,332.18 70110 Phone $ 52,599.02 70120 Postal $ 77,803.61 71000 Miscellaneous Office Expense $ 24,891.82 72000 Payroll Tax Exp $ 1,577,811.85 73000 Pension/Profit-Sharing Plan Ex $ 3,630,375.80 78600 Controllers' Clearning Account 74000 Rent or Lease Expense $ 1,206,574.00 77500 Administrative Wages Expense $16,197,225.43 78000 Interest Expense $ 2,591,736.50 78500 Income Tax Expense - Federal $ 8,900,000.00 78510 Income Tax Expense - State $ 3,100,000.00 ############# Credit Amt $ 1,239,009.75 $ 846,000.00 $ 610,000.00 $ 1,922,095.91 $ $ $ 8,439.65 11,414.99 118,086.12 $ 55,106.86 $ 8,439.65 $ 11,414.99 $44,403,000.00 $12,000,000.00 $ 8,105,000.00 $ 7,423,000.00 $ 6,590,483.64 ############# $ 1,426,089.31 $ 131,881.46 $ 2,166,000.00 $ 330,375.80 ############# Apollo Shoes ENGAGEMENT MATERIALITY (Required for all engagements) Apollo Shoes December 31, 2020 CLIENT: PERIOD ENDED: This completed form must be provided to the engagement quality control reviewer in the planning stage of every audit. PLANNING MATERIALITY CALCULATION Only if the current year net income (loss) (or other measure) is significantly different from the entity’s historical results would 2-year averaging to obtain normalized net income (loss) (or other measure) be appropriate. PROFIT ORIENTED ENTITIES Net income (loss) Plus (minus) unusual, non-recurring revenues and expenses, and extraordinary items. ADJUSTED NET INCOME (LOSS) Current Year 50,549,082 Prior Year 4,371,363 50,549,082 4,371,363 2,527,454 218,568 Adjusted net income (loss) multiplied by: 5% Current Year 131,205,564 TOTAL ASSETS 36,793,726 Total assets multiplied by: 1% 1,312,000 368,000 Current Year TOTAL REVENUES Plus (minus) unusual, non-recurring revenues 241,675,335 - ADJUSTED REVENUES - 241,675,335.24 0 2,416,753 Total adjusted revenues multiplied by: 1% JUSTIFICATION OF PLANNING MATERIALITY 1. Financial data source (i.e. actual, budget, projection): Year end trial balance, actual data obtained from client. 2. Basis (i.e. normalized net income, revenue, Adjusted net income total assets, other): Justification: Based on prior experience with the client we conclude that adjusted net income is an appropriate base for planning materiality. Standard 5% used. 3. Percentage of financial data source used: 4. Amount selected (planning materiality) 2,527,454 5. Prior year’s final materiality 218,568 6. Performance materiality/Tolerable misstatement (75% of planning materiality) 1,895,591 7. Listing scope (amount threshold for suggested adjustments) (using 5% to 10% of planning materiality based on expected level of adjustments is usually appropriate) 5% 126,373 Engagement Partner A. Anderson Engagement Quality Control Reviewer Ernest Olds A-5 Prepared by Reviewed by ng stage of every audit. TC AA Apollo Shoes, Inc Preliminary Analytical Procedures Audited 2019 Account ID 10100 10200 10300 10400 11000 11400 11500 12000 12300 14100 14200 14300 14400 14700 15000 15100 15200 17000 19000 19900 20000 23100 23200 23300 23350 23400 23500 23600 23700 23800 23900 24100 24200 24700 27000 39003 39004 39005 40000 41000 42000 45000 46000 47000 50010 57500 60000 Account Description Cash on Hand Regular Checking Account Payroll Checking Account Savings Account Accounts Receivable Other Receivables Allowance for Doubtful Accounts Inventory Reserve for Inventory Obsolescence Prepaid Insurance Prepaid Rent Office Supplies Notes Receivable-Current Other Current Assets Land Buildings and Land Improvements Machinery, Equipment, Office Furniture Accum. Depreciation Investments Other Noncurrent Assets Accounts Payable Sales Tax Payable Wages Payable FICA Employee Withholding Medicare Withholding Federal Payroll Taxes Payable FUTA Tax Payable State Payroll Taxes Payable SUTA Tax Payable FICA Employer Withholding Medicare Employer Withholding Line of Credit Current Portion Long-Term Debt Other Current Liabilities Notes Payable-Noncurrent Common Stock Paid-in Capital Retained Earnings Sales Sales Returns Warranty Expense Income from Investments Interest Income Miscellaneous Income Cost of Goods Sold Freight Advertising Expense (Audited) B-1 Prepared by Reviewed by Unaudited 2020 (Unaudited) Raw Change Percent Change (CY-PY) (Raw Change/PY) E E E 61000 62000 64000 64500 65000 66000 67000 68000 70000 70100 70110 70120 71000 72000 73000 78600 74000 77500 78000 78500 78510 80000 Auto Expenses Research and Development Depreciation Expense Warehouse Salaries Property Tax Expense Legal and Professional Expense Bad Debt Expense Insurance Expense Maintenance Expense Utilities Phone Postal Miscellaneous Office Expense Payroll Tax Exp Pension/Profit-Sharing Plan Ex Controllers' Clearning Account Rent or Lease Expense Administrative Wages Expense Interest Expense Income Tax Expense - Federal Income Tax Expense - State Loss on Legal Settlement E Tickmark Legend F - Footed without exception M - Amount is considered immaterial (
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Explanation & Answer

Hello, I hope you are doing well. I have done the preliminary analytical procedures. Please make sure you indicate your name where it it has been stated. You are free for any clarifications.

Apollo Preliminary Analytical Procedures Audit Mini-Case
In this mini-case you will perform the Preliminary Analytical Procedures required as part of audit planning. For
ease your audit manager has already organized the workpapers and completed the planning materiality worksheet.
Instructions:
Read the planning materiality memo from your team member (Taylor Crump), then read the steps in the audit
program found on Work Paper B-0 and familiarize yourself with work paper B-1. Complete all the steps on the
audit program. Be sure to document your work using the designated tick marks. The tick mark legend is located at
the bottom of each work paper.
When you are finished with the PAP workpaper, enter your initials in the box in the top right marked "Prepared
By"
This entire completed workbook should be renamed as PreAP_Firstname_Lastname and upload.

Apollo Shoes, Inc.
AUDIT PLAN—Preliminary Analytical Procedures
FYE 12/31/2020
Workpaper
Reference
1

2
3

Complete engagement materiality memo.
Obtain 2019 audited trial balance and 2020 unaudited
trial balance. Create Preliminary Analytical
Procedures (PreAP) workpaper that calculates
absolute and percentage change over the prior year for
each line item.
Cross reference all balances on PAP workpaper to TB
and foot amounts.
Investigate any percentage change > 10% or over
Planning Materiality (see A-5).

4

5

Select three important changes noted on the PreAP,
and include them on the deliverable for your senior to
review. For each change, specify two hypotheses that
could be driving each change.

A-5

B-1

Related Assertion
(s)

B-0

Performed
by
TC

Comments
Please comment on whether you think
materiality seems reasonable and why?

You will select only three changes to
investigate (see step 5). However, this
step would be completed in a normal
audit.

Apollo Shoes, Inc
Trial Balance (Audited)
31-Dec-19
Account ID
10100
10200
10300
10400
11000
11500
12000
12300
14100
14200
14300
14400
14700
15000
15100
15200
17000
19000
19900
20000
23100
23200
23300
23350
23400
23500
23600
23700
23800
23900
24100
24200
24700
27000
39003
39004
39005
40000
41000
42000
45000
46000
47000
50010
57500
60000
61000

PBC
A-1

Account Description
Debit
Cash on Hand
$1,987.28
Regular Checking Account
$198,116.52
Payroll Checking Account
$0.00
Savings Account
$3,044,958.13
Accounts Receivable
$16,410,902.71
Allowance for Doubtful Accounts
0
Inventory - Spotlight
$18,825,205.24
Reserve for Inventory Obsolescence
0
Prepaid Insurance
$743,314.38
Prepaid Rent
$200,000.00
Office Supplies
$7,406.82
Notes Receivable-Current
0
Other Current Assets
0
Land
$117,000.00
Buildings and...


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