Moore Packaging is a manufacturer of corrugated products servicing all of Ontario. It's annual audit was in progress and the senior on the audit, Ray Radcliffe, was reviewing procedures over accounts receivable, inventory, property plant and equipment and accounts payable.
The accounts receivable accounts were deemed to be key when it came to possible material misstatements. The preliminary work on test of controls had indicated higher than usual exceptions of shipments of goods to customers without the appropriate credit checks being performed.
The property plant and equipment account had not changed significantly over the last 5 years, and it was anticipated that there would be little extra effort required to audit this account. Last year's balance - net of amortization was $7,600,000. The preliminary amount - net of amortization for this year was $7,700,000.
Total accounts payable was $2,200.000. The accounts payable amounts seemed to be all zero balances or relatively low balances. The exceptions consisted of two major suppliers to whom the company owed $1,800,000.
The inventory taking was missed this year at two of the three locations as local flooding had prevented the auditors from attending the annual inventory. The company keeps perpetual records for 90% of its inventory values. Year-end inventory balances tend to be in the $10,000,000-$12,000,000 range.
Materiality has been set at $2,000,000 for the Moore Packaging audit.
Required:
a) What are the key assertions that Ray Radcliffe will need to focus on for accounts receivable?
b) What work will Ray Radcliffe's audit team be doing to substantiate the accounts receivable valuation at Moore Packaging?
c) What procedures can be taken for the substantive tests of inventory, given the fact the company keeps perpetual records.
d) What work will the auditors have to perform to substantiate the inventory valuation at Moore Packaging?
e) What are the two key assertions for payables? Discuss their importance and the techniques used to ensure they are fulfilled.
f) Where should the auditors focus their confirmation procedures for accounts payable at Moore Packaging?
g) What substantive procedures will Ray Radcliffe's team have to consider for Property Plant & Equipment accounts?

Question

Quizplus · Accepted Answer

The Answer of Moore Packaging is a manufacturer of corrugated products servicing all of Ontario. It's annual audit was in progress and the senior on the audit, Ray Radcliffe, was reviewing procedures over accounts receivable, inventory, property plant and equipment and accounts payable.
The accounts receivable accounts were deemed to be key when it came to possible material misstatements. The preliminary work on test of controls had indicated higher than usual exceptions of shipments of goods to customers without the appropriate credit checks being performed.
The property plant and equipment account had not changed significantly over the last 5 years, and it was anticipated that there would be little extra effort required to audit this account. Last year's balance - net of amortization was $7,600,000. The preliminary amount - net of amortization for this year was $7,700,000.
Total accounts payable was $2,200.000. The accounts payable amounts seemed to be all zero balances or relatively low balances. The exceptions consisted of two major suppliers to whom the company owed $1,800,000.
The inventory taking was missed this year at two of the three locations as local flooding had prevented the auditors from attending the annual inventory. The company keeps perpetual records for 90% of its inventory values. Year-end inventory balances tend to be in the $10,000,000-$12,000,000 range.
Materiality has been set at $2,000,000 for the Moore Packaging audit.
Required:
a) What are the key assertions that Ray Radcliffe will need to focus on for accounts receivable?
b) What work will Ray Radcliffe's audit team be doing to substantiate the accounts receivable valuation at Moore Packaging?
c) What procedures can be taken for the substantive tests of inventory, given the fact the company keeps perpetual records.
d) What work will the auditors have to perform to substantiate the inventory valuation at Moore Packaging?
e) What are the two key assertions for payables? Discuss their importance and the techniques used to ensure they are fulfilled.
f) Where should the auditors focus their confirmation procedures for accounts payable at Moore Packaging?
g) What substantive procedures will Ray Radcliffe's team have to consider for Property Plant & Equipment accounts?

Moore Packaging Is a Manufacturer of Corrugated Products Servicing All