Audit Program Design Part II
ACC/546
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. Analytical Procedures for Payroll and Personnel Cycles
The purpose of the analytical procedures is to compare and contrast the methods used to ensure proper internal controls are in use for the payroll and personnel cycles. The following examples are designed to aid in reconciliation Compare payroll expense account balance to previous years (adjusted for pay rate increases and increases in volume.
• Compare direct labor as a percentage of sales with previous years.
• Compare payroll tax expense as a percentage of salaries and wages with previous years (adjusted for changes in the tax rates).
• Compare accrued payroll tax accounts with previous years.

Acquisition and Payment Cycle
The final controls to design are for the acquisition and payment cycle. The three major transactions in this cycle include acquisition of goods and services, cash disbursement, and purchase returns, and allowances and purchase discounts. The first audit objective is to test for existence by verifying that purchase requisition, purchase order, receiving report, payment transactions and vendor invoices are attached to the voucher. It must also be verified that the level of credit approval is correct, entry of purchases are from authorized vendors only, and that all transactions are legitimate. Next, documents are examined for existence, vendors are verified, and payable files checked for unusual accounts. The fixed assets that were acquired are examined as well.
The next audit objective is to test control for completeness by checking that the transactions are renumbered and in sequence order. Transactions are then traced to vouchers and journals. The next audit objective is to test controls for accuracy by verifying that the calculations are correct and are compared to summary reports. The journals and reports are compared for accuracy. The audit objective is to test controls for classification by verifying account classification and examining the chart of accounts and procedures by comparing the classification with the chart of accounts as they refer to the vendor’s invoice. Last, the audit objective is to test controls for timing by verifying dates and examining and observing unrecorded vendor invoices and transactions. These transactions are verified internally. The dates of receiving reports and invoice are then compared with dates of acquisition and payment transactions.

The audit program is designed to allow the organization to understand how the auditors will be testing internal controls. This series of tests and analytical procedures are designed to prove the value and validity of the sales and collection cycle, payroll and personnel cycle, and acquisition and payment cycle. The tests focus on existence, completeness, and accuracy. Once the tests are complete, we will have a clear idea on how to proceed with the remainder of the audit. It will also help to determine how long the audit will take and how much it will cost.