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Audit Program Design

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Audit Program Design Part Ii

Audit Program Design Part II


January 31, 2011

At Anderson, Olds, and Watershed, we have developed the following test of controls, substantive test of transactions, and analytical procedures for the audit of the sales and collection cycle, the payroll and personnel cycle, and the acquisition and payment cycle of Apollo Shoe Company. The tests are consistent with generally accepted auditing methods in The United States of America. The tests will be designed to prove existence, completeness, and accuracy. Please take the time to look over the proposed tests and techniques and feel free to ask any questions regarding the tests that will be performed.

Sales and Collection Cycle

To test for existence, AOW will verify whether sales invoices are attached to the bill of lading or not and check to see if there are any invoices with unusual transactions or amounts. Next, we will check completeness by verifying the sequence of sales documents and trace the selected sales documents through the sales and collection process. We will also verify the prices of selected sale items and recompute the sales invoices that are billed to the customer for accuracy. The next step is to verify the classifications of sales transactions by examining the document package for internal verification and examining sales invoices for proper account classifications. The final audit objective test will consider timing. We will verify that sales are recorded on the correct dates. We will also verify the shipping documents with sales transactions and customer invoices for accurate dates and correct sequences.

Payroll and Personnel Cycle

The object of these checks are to prove that recorded payroll payments are for work performed by existing employees, time cards are approved by supervisors, and that there is segregation of duties among personnel, timekeeping, and payroll disbursements. AOW will verify that timecards are examined for approvals, personnel files are reviewed, and observe duties are performed.

The testing procedures remain consistent between cycles. To test for completeness in the payroll and personnel cycle, we must check that payroll checks are numbered and accounted for and that bank accounts are independently reconciled. Also we must reconcile the disbursements in the payroll journal with the disbursements on the payroll bank statements. To test for accuracy, we must verify that calculations and amounts are internally verified by checking for initials of authorized individuals. We could also recompute timecards and gross pay. To test for timing, we compare the date of the recorded check in the payroll journal with the date on the canceled check and the timecard. To check for posting and summarization, the payroll master file totals re compared with general ledger totals. We must examine the initialed summary total reports indicating that comparisons have been made.



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