audit program for internal cash control

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ACC 405 Final Project One Scenario Posey Company

 

Overview

You are a financial accountant for Posey Company tasked with preparing consolidation documentation at year end. You have the following information:

 

December 31, 20X5

Posey Company acquired 90% of Stargell Corporation’s outstanding common stock for $1,116,900. On that date:

· The fair value of the noncontrolling interest was $124,100;

· Stargell reported common stock outstanding of $487,000, premium on common stock of

$267,000, and retained earnings of $407,000; the book values and fair values of Stargell’s assets and liabilities were equal except for land, which was worth $30,000 more than its book value.

 

On April 1, 20X6

· Posey issued at par $200,000 of 10% bonds directly to Stargell; interest on the bonds is payable March 31 and September 30.

 

On January 2, 20X7

· Posey purchased all of Stargell’s outstanding 10-year, 12% bonds from an unrelated institutional investor at 98. The bonds originally had been issued on January 2, 20X1, for 101. Interest on the bonds is payable December 31 and June 30.

 

Since the date it was acquired by Posey

· Stargell has sold inventory to Posey on a regular basis. The amount of such intercompany sales totaled $67,000 in 20X6 and $83,000 in 20X7, including a 30% gross profit.

· All inventory transferred in 20X6 had been resold by December 31, 20X6, except inventory for which Posey had paid $18,000 and did not resell until January 20X7.

· All inventory transferred in 20X7 had been resold at December 31, 20X7, except merchandise for which Posey had paid $16,667.

 

As of December 31, 20X7

· Stargell had declared but not yet paid its fourth-quarter dividend of $12,750.

· Both Posey and Stargell use straight-line depreciation and amortization, including the amortization of bond discount and premium.

· On December 31, 20X7, Posey’s management reviewed the amount attributed to goodwill as a result of its purchase of Stargell common stock and concluded that an impairment loss in the amount of $25,000 had occurred during 20X7 and should be shared proportionately between the controlling and noncontrolling interests.

· Posey uses the fully adjusted equity method to account for its investment in Stargell.

 

On December 31, 20X7, trial balances for Posey and Stargell appeared as follows:

 

Posey Company

 

 

 

 

 

Stargell Corporation

 

Item

 

 

 

Debit

 

 

 

Credit

 

 

 

 

 

Debit

 

 

 

Credit

 

Cash

 

$

 

49,500

 

 

 

 

 

 

 

$

 

39,000

 

 

 

 

 

Current Receivables

 

 

 

121,500

 

 

 

 

 

 

 

 

 

90,100

 

 

 

 

 

Inventory

 

 

 

317,000

 

 

 

 

 

 

 

 

 

364,900

 

 

 

 

 

Investment in Stargell Stock

 

 

 

1,243,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Stargell Bonds

 

 

 

985,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Posey Bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

200,000

 

 

 

 

 

Land

 

 

 

1,241,000

 

 

 

 

 

 

 

 

 

518,000

 

 

 

 

 

Buildings and Equipment

 

 

 

2,940,000

 

 

 

 

 

 

 

 

 

1,915,000

 

 

 

 

 

Cost of Goods Sold

 

 

 

1,829,000

 

 

 

 

 

 

 

 

 

426,000

 

 

 

 

 

Depreciation & Amortization

 

 

 

184,000

 

 

 

 

 

 

 

 

 

65,000

 

 

 

 

 

Other Expenses

 

 

 

632,000

 

 

 

 

 

 

 

 

 

206,000

 

 

 

 

 

Dividends Declared

 

 

 

61,000

 

 

 

 

 

 

 

 

 

51,000

 

 

 

 

 

Accumulated Depreciation

 

 

 

 

 

$

 

1,050,000

 

 

 

 

 

 

 

$

 

597,000

 

Current Payables

 

 

 

 

 

 

 

699,190

 

 

 

 

 

 

 

 

 

213,000

 

Bonds Payable

 

 

 

 

 

 

 

200,000

 

 

 

 

 

 

 

 

 

1,000,000

 

Premium on Bonds Payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,000

 

Common Stock

 

 

 

 

 

 

 

910,000

 

 

 

 

 

 

 

 

 

487,000

 

Premium on Common Stock

 

 

 

 

 

 

 

610,000

 

 

 

 

 

 

 

 

 

267,000

 

Retained Earnings, January 1

 

 

 

 

 

 

 

2,848,950

 

 

 

 

 

 

 

 

 

457,000

 

Sales

 

 

 

 

 

 

 

3,010,000

 

 

 

 

 

 

 

 

 

801,000

 

Other Income

 

 

 

 

 

 

 

143,000

 

 

 

 

 

 

 

 

 

50,000

 

Income from Stargell Corp.

 

 

 

 

 

 

 

132,660

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

 

9,603,800

 

$

 

9,603,800

 

 

 

$

 

3,875,000

 

$

 

3,875,000

 

 

ACC 411 Milestone Two Guidelines and Rubric

 

Overview: Careful planning is a critical part of the success of every audit. However, planning is not simply done at the beginning of the audit but is a continuous and iterative process in which the results of one stage of the audit often necessitate revisions to plans for the next stage.

 

Prompt: Using your analysis of the business environment of RNS from Milestone One, as well as your textbook reading on planning an audit of cash accounts, write an audit program (plan) that could be used to evaluate RNS’s internal controls for cash. Be sure your program addresses each component of internal control.

 

Specifically, the following critical elements must be addressed:

 

I. Write an audit program for internal control of cash in Word or Excel. The following components must be included:

A. Control environment

B. Risk assessment

C. Control activities

D. Information and communication

E. Monitoring

 

Rubric

 

Guidelines for Submission: You can submit your audit program using Microsoft Word or Excel.

 

Critical Elements

 

Proficient (100%)

 

Needs Improvement (75%)

 

Not Evident (0%)

 

Value

 

Audit Program: Control Environment

 

Writes an audit program that effectively and completely addresses the control environment component of internal control of cash

 

Writes an audit program for the control environment component of internal control of cash, but the program is inappropriate, incomplete, or unclear

 

Does not write an audit program for the control environment component of internal control of cash

 

18

 

Audit Program: Risk Assessment

 

Writes an audit program that effectively and completely addresses the risk assessment component of internal control of cash

 

Writes an audit program for the risk assessment component of the internal control of cash, but the program is inappropriate, incomplete, or unclear

 

Does not write an audit program for the risk assessment component of internal control of cash

 

18

 

Audit Program: Control Activities

 

Writes an audit program that effectively and completely addresses the control activities component of internal control of cash

 

Writes an audit program that addresses the control activities component of internal control of cash, but the program is inappropriate, incomplete, or unclear

 

Does not write an audit program that addresses the control activities component of the internal control of cash

 

18

 

Critical Elements

 

Proficient (100%)

 

Needs Improvement (75%)

 

Not Evident (0%)

 

Value

 

Audit Program: Information and Communication

 

Writes an audit program that effectively and completely addresses the information and communication component of internal control of cash

 

Writes an audit program that addresses the information and communication component of the internal control of cash, but the program is inappropriate, incomplete, or unclear

 

Does not write a program that addresses the information and communication component of the internal control of cash

 

18

 

Audit Program: Monitoring

 

Writes an audit program that completely and effectively addresses the monitoring component of internal control of cash

 

Writes an audit program that addresses the monitoring component of internal control of cash, but the program is inappropriate, incomplete, or unclear

 

Does not write a program to address the monitoring component of the internal control of cash

 

18

 

Articulation of Response

 

Submission has no major errors related to citations, grammar, spelling, syntax, or organization

 

Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas

 

Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas

 

10

 

Total

 

100%

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