Quick Guide to IT Audit Solutions

Exercise 10-b
Review customer balances for unusual trends and exceptions.

Upon examination of the list of customers and their balances, you noticed that the balance of Lappy Trading is negative. This is
unusual considering that customer balances are normally debit or positive. The auditor can investigate further this exception.

1. Choose LappyTrading on the list of business partners to open the Business Partner Master Data.

2. Click the ‘link arrow’ beside the Account Balance field.

3. Account balance details of Lappy Trading will open. Change the Posting Date from ’01.01.13’ to ’12.31.13’. Then click
the ‘link arrow’ beside the origin number. (ie. 25)

4. Incoming Payment document will open. If you examine the document, no invoice has been selected for payment which
is not typical for an incoming payment of A/R Invoice.
4. This could be due to a wrong application of collection from a different customer. Examine the balances of the customer
to see if there is a similar amount. You will see that Zebra Computers' is the same as the amount applied in the incoming
payment for Lappy Trading.
> Go to Business Partner Master Data.
> Go to Find mode (Ctrl + F).
> Put an asterisk on the code field then press enter.
> List of Business Partners will appear.

Proposed Adjusting Journal Entry:

Dr. Accounts Receivable – Lappy Trading 368,808.00
Cr. Accounts Receivable – Zebra Computers 368,808.00

Exercise 10-c
Review list of customers for any duplicated items

1. Open both the Business Partner Master Data for Jacob Electrics and Jacob Electronics.
 Go to Business Partners > Business Partner Master Data.
 Go to Find mode (Ctrl + F).
 Put an asterisk on the code field then press enter.
 List of Business Partners will appear.
 Select first Jacob Electrics. Then repeat the process for Jacob Electronics.
2. Upon comparison and examination of both the Business Partner Master Data, we can conclude that Jacob Electrics
and Jacob Electronics pertain to one customer only.

3. Transfer the balance of Jacob Electrics to Jacob Electronics. Then set the Business Partner Master Data of Jacob Electrics
to ‘Inactive’. However, you can only do this once all the open invoices for Jacob Electrics are closed.

4. Do the same process for New World Dot Net and New World Dot Net Co.

Exercise 11: Testing the Valuation and Allocation Assertion

View the Aging of Accounts Receivable and provide for Allowance for Doubtful Accounts based on Company’s policies.
IMPORTANT: Before you compute the Allowance, make sure that you use the correct balances of the customer. Consider
the previous exercises.
 Unadjusted
Balance of Adjusted 61 -
Customer Invoices Adjustments Balance 0 - 30 31 - 60 90 91 - 120 121 +
Jacob - - 241,401.60
Electronics 201,168.00 496,214.40 697,382.40 254,812.80 201,168.00
Zebra - - -
Computers 368,808.00 (368,808.00) - - -
Lappy - - -
Trading (145,288.00) 368,808.00 223,520.00 223,520.00 -
New World - 458,216.00 -
Dot Net, Co 469,392.00 726,440.00 1,195,832.00 469,392.00 268,224.00
Solid - 424,688.00 -
Electrics, Inc. 424,688.00 - 424,688.00 - -
Jacob - - -
Electrics 496,214.40 (496,214.40) - - -
New World - - -
Dot Net 726,440.00 (726,440.00) - - -
TOTAL 2,541,422.40 - 2,541,422.40 947,724.80 469,392.00 - 882,904.00 241,401.60
Percentage 2% 5% 8% 10%
Doubtful - 70,632.32 24,140.16
Accounts 9,387.84
Provision for
Doubtful
Accounts 104,160.32
Proposed Adjusting Journal Entry:
Dr. Doubtful Accounts Expense 104,160.32
Cr. Allowance for Doubtful Accounts 104,160.32

EXERCISE 13: Testing the Completeness Assertion

It was noted that there were no A/P Invoices yet recorded for the Goods Receipt PO. This means that the particular vendor
subsidiary ledgers were not yet updated. You need to create an adjusting entry to update the vendors’ subsidiary ledgers.

1. See the journal entry created for the GRPO to create a proper adjusting entry.
 Go to Purchasing A/P > Goods Receipt PO
 Go to Find mode (Ctrl + F).
 Put an asterisk on the vendor field then press enter.
 List of GRPO will appear.
 Select GRPO No. 27. Goods Receipt PO No. 27 will open.
2. Inside the GRPO No. 27, go to Accounting Tab then click the link arrow beside the journal remark. Automatic journal
entry created will open. Use the journal entry created as the basis for the adjusting entry.
3. Do the same process for GRPO No. 26 to get the total amount of adjustment needed.

Proposed Adjusting Journal Entry:

Dr. Goods Received Not Invoiced 477,120
Dr. Input Tax 60,480
Cr: PC Express 224,000.00
Cr: Hexagon Computer Shop 313,600.00
EXERCISE 14: Testing the Existence Assertion
You should check the payments made in January 2014 of those liabilities pertaining to the year 2013 and make sure that
it is recorded in the proper period.

1. Click the link arrows beside each Document number to open the Outgoing Payment, each document should have a
related A/P Invoice set up.

2. Open the Relationship Map of each Outgoing Payment document. Right click anywhere inside the Outgoing Payment
then choose Relationship Map.
3. Do this for all Outgoing Payment documents. Those documents with no A/P Invoice mean that no liabilities have been
recorded for 2013.
Without A/P Invoice: OP No. 63, 64, 65
With A/P Invoice: OP No. 66 and 67
4. To double check if there were really no A/P Invoices recorded for the noted Outgoing Payments. Do this for Salaries
Payable.
 Go to Financials > Chart of Accounts
 Click the Liabilities drawer then select Salaries Payable.
 Click the link arrow beside the Balance to open the General Ledger of Salaries Payable
 Change the Posting Date: ‘From’: 01.01.13 ‘To’: 12.31.13
 Upon scrolling down, you will see that there is no balance as of December 31, 2013.

Proposed Adjusting Journal Entry:

Salaries and Wages 93,000
Utilities Expense 77,000
Salaries Payable 93,000
Utilities Payable 77,000
SUBSTANTIVE OF OTHER FINANCIAL STATEMENT ACCOUNTS

Audit of Cash
1. Perform the Bank Reconciliation.

DEPOSITS IN TRANSIT – Examine the deposit documents created for the month of December then compare this with
the deposits reflected in the bank statement.
 Go to Banking >Deposits > Deposit
 Go to Find mode (Ctrl + F). Type an asterisk (*) on the Deposit No. field then press ‘Enter’
 Examine the deposits created for December then traced it to the Bank Statement. If it is not present in the
Bank Statement, those will be considered as reconciling items for Balance per Bank as Deposits in Transit.
 OUTSTANDING CHECKS – Examine the checks that were issued for the month of December then compare this with the
checks reflected in the bank statement
 Go to Banking >Outgoing Payments > Checks for Payment
 Go to Find mode (Ctrl + F). Type an asterisk (*) on the Internal ID field then press ‘Enter’
 Examine the checks created for December then traced it to the Bank Statement. If it is not present in the Bank
Statement, those will be considered as reconciling items for Balance per Bank as Outstanding Checks.
 RECONCILING ITEMS FOR BALANCE PER BOOKS
 Credit Memo: Partial collection from amount due from Solid Electrics (P190,000.00)
 Credit Memo: Interest income for the year (P1,200.00)
 Debit Memo: Bank charges for the month (P500.00)

Balance per Bank Ref.No. 521,890.40

Add: Deposits in Transit
Lappy Trading IP No. 25 369,600.00
Lexxus Computer Shop IP No. 24 224,000.00
Jacob Electronics IP No. 23 322,560.00
EZ Electronics and Gadgets IP No. 22 358,400.00 1,271,828.80
Less: Outstanding Checks
MeralSa Ck No. 1048 45,000.00
Asiatique Computers Ck No. 1049 156,800.00
Computer Man Enterprises Ck No. 1050 302,400.00
Total adjustments 767,592.80
Adjusted Balance 1,292,250.40

Balance per Book 1,101,550.40

Add:
Partial collection from Solid 190,000.00
Interest Income 1,200.00 191,200.00

Less: Bank Charge 500.00

Adjusted Balance 1,292,250.40

Proposed Adjusting Journal Entry:

Dr.Metrobank Account No. 9021 190,700.00
Dr. Bank Charge 500.00
Cr. Accounts Receivable – Solid Electrics 190,000.00
Cr. Interest Income 1,200.00
Audit of Inventories
1. Use the First-In, First-Out (FIFO) method in computing the inventory value. To compute, here is an example using ACER
Laptop inventory using the Inventory Audit Report
 According to the report, there are 20 units of Acer Laptops on the day when the compartment collapsed.
 If FIFO has been used, these units are composed of the latest purchases made.
 Count backwards from the latest purchase which is December 11 until you have 20 units.

So the cost of Acer Laptops using FIFO is computed as follows:

Date Units Purchase Price Total
12.11.13 7 27,000.00 189,000.00
11.25.13 5 26,000.00 130,000.00
10.11.13 8 24,000.00 192,000.00
TOTAL 20

2. Compare the cost computed with the net realizable value. According to standards, the inventories should be valued at
lower of cost or net realizable value (NRV). If NRV is lower, that would be the new value of inventory and an inventory
loss should be recorded. So for Acer Laptop, this would be the computation.
Date Units Cost NRV Write Down
12.11.13 8 27,000.00 28,000.00 -
11.25.13 5 26,000.00 28,000.00 -
10.11.13 8 24,000.00 28,000.00 -
TOTAL 20

3. Since NRV is higher than cost, no write down is needed.

4. Do the same for other inventory items.

Date Units Cost NRV Write Down TOTAL

DELL (27 units)
11.11.13 15 27,000.00 25,000.00 (2,000.00) 30,000.00
09.09.13 12 25,000.00 25,000.00 - -

LENOVO (15 units)

11.28.13 8 29,000.00 28,000.00 (1,000.00) 8,000.00
10.30.13 7 27,000.00 28,000.00 - -

SAMSUNG (No units

as of 12.20.13) - - - - -
TOTAL 38,000.00

Proposed Adjusting Journal Entry:

Dr. Inventory Losses 38,000.00
Cr. Inventories 38,000.00
Audit of Prepayments
It is duly noted that both prepayments, Office Supplies and Insurance Expense should be adjusted.

1. For Office Supplies, 80% should be recorded as expense. That is P16,000.00.

Proposed Adjusting Journal Entry:
Dr. Office Supplies Expense 16,000.00
Cr. Office Supplies 16,000.00

2. As for the Insurance, it was initially recorded using expense method so the unexpired portion should be recognized as
asset.
 Go to Financials > Chart of Accounts
 Click the Operating Costs drawer then select ‘Insurance Expense’
 Click the link arrow beside the balance to open the ledger of Insurance Expense. Change the dates: From: 01.01.13;
To: 12.31.13
 Take note of the date of transaction which indicates the start of the insurance period.

3. Compute the unexpired portion of insurance based on the posting date of the transaction
Total Amount of Insurance Premium P50,000.00
Ratio of Unexpired Period (14 months) 14/24
Unexpired Portion P29,166.67

Proposed Adjusting Journal Entry:

Dr. Prepaid Insurance 29,166.67
Cr. Insurance Expense 29,166.67
Audit of Fixed Assets
1. Obtain the date of purchase of the various fixed assets to properly compute depreciation.
(Instructions on the Quick Guide)

Acquisition Acquisition Salvage Depreciable Useful Yearly Period for 2013

Fixed Asset Date Cost Value Cost Life Depreciation 2013 Depreciation
Office Equipment 03.29.13 240,000.00 24,000.00 216,000.00 5 43,200.00 9 months 32,400.00
Office Furniture 01.15.13 200,000.00 20,000.00 180,000.00 5 36,000.00 11.5 34,500.00
Delivery Truck 02.28.13 1,000,000.0 100,000.0 900,000.00 10 90,000.00 10 months 75,000.00
Leasehold Improvements 01.31.13 1,500,000.0
0 150,000.0
0 1,350,000. 20 67,500.00 11 months 61,875.00
TOTAL DEPRECIATION FOR 2013 0 0 00 203,775.00

Proposed Adjusting Journal Entry:

Dr. Depreciation Expense 203,775.00
Cr. Accumulated Depreciation – Office Equipment 32,400.00
Cr. Accumulated Depreciation – Office Furniture 34,500.00
Cr. Accumulated Depreciation – Delivery Truck 75,000.00
Cr. Accumulated Depreciation – Leasehold Improvements 61,875.00

*** NOTHING FOLLOWS ***