Transcript Simply Soups Inc. - Ross Fuerman

Electronic Confirmation Process
Simply Soups Inc.
Background and Case Introduction
edu.Confirmation.com
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
Session ONE
Case Study Kick-off
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
Objectives:
Audit Objectives • To develop critical think skills by identifying risks
in the confirmation process
• To evaluate the persuasiveness of
confirmation responses and recognize
alternative audit procedures for confirmations
Practical Objectives
Regulatory Objectives
• To utilize an electronic confirmation platform
• To understand the proposed confirmation
standard
• To understand the audit documentation
standard
Technical Objective • To understand the steps necessary to
evaluate a third party intermediary’s control
environment
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
External Confirmation
“ Audit evidence
obtained as a direct
written response to
the auditor from a
third party in paper
form, or by electronic
or other medium.”
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
External Confirmation
The confirmation process includes:
 Selecting items for confirmation
 Designing the request
 Communicating the request to the
appropriate third party
 Obtaining the response
 Evaluating the information received,
including its reliability
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
The Confirmation Process
Auditors should …
• Exercise professional skepticism
• Authenticate responding entity
• Validate authorized respondent
• Maintain control
• Directly communicate with the
respondent
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
Electronic Confirmations
The ASB and IAASB  The process is secure
state that
and properly
controlled
electronic
confirmations can  There is direct
communication
be considered
reliable audit
 The information is
obtained from a third
evidence if the
party who is the
auditor is satisfied
intended respondent
that…
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
Electronic Confirmations: RISKS
Reliability Risks
• Process might not be
secure or properly
controlled
• Respondent is not
authorized to respond
• Integrity of the
transmission might
have been
compromised
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
Electronic Confirmation Controls
If an intermediary is used to facilitate
confirmations, the AUDITOR should
obtain an understanding of the controls
over the procedures used by the
intermediary to process the
confirmation requests and responses.
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
AS No. 3: Audit Documentation
The written record that provides
the support for the representations
in the auditor's report should:
• Demonstrate compliance with
the standards
• Support the basis for conclusions
reached
• Demonstrate that the underlying
accounting records agree or
reconcile with the financial
statements
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
AS No. 3: Audit Documentation
Remember
Unless you properly
DOCUMENT
AND
RETAIN EVIDENCE
of your work, others will
not be able to
rely on the testing
performed.
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
Why Confirm Cash?
Provides audit
evidence to address
the risk of material
misstatement due to
fraud and because
of the importance of
cash to a
company’s liquidity
and ongoing
operations.
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
Case Study
You:
Firm:
Client:
Year End:
Audit Staff
Putnam and Jacobs LLP
Simply Soups Inc.
December 31, 2013
Task:
Complete the audit step “Confirm
Cash Balances”
Positive blank confirmations
edu.Confirmation.com
Use:
Service:
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
edu.Confirmation.com
https://edu.confirmation.com/home.aspx
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© 2013 Professor Brian Fox. Edu.Confirmation.com
Used with Permission. All rights reserved.
Case Study Materials
Download from: edu.Confirmation.com
Includes:
• Simply Soups Inc. Case Study
– Audit Procedure Checklist
– Confirmation Testing Workpaper and
Memo
– Client Audit Materials
•
•
•
•
•
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
Trial Balance
Cash Lead Sheet
Bank Reconciliation Summary
Bank Account Listing
Instructional Guide for Student
– A true step-by-step handbook
– edu.Confirmation.com Shortcuts
– Trouble Shooting Checklist
– Technical Guide
Trial Balance
PBC
Simply Soups Inc.
177 Washington Lane, Cherry Hill, NJ 08034
609-555-5555
Trial Balance
As of December 31, 2013
Debit
Credit
Cash - Acct. 10000
10001 Fifth Federal
478,921.54A
10002 Sparkasse-Frankfurt
235,087.29
10003 American NorthWest Bank
144,019.83
10004 BNY Federal
477,832.15
10005 Tenth National Bank
301,015.18
10006 Bank of Citizens
348,701.60
1,985,577.59
Accounts Receivable - Acct. 11000
Tick Legend
A The sum of this balance was agreed into the Balance Sheet without
exception, W. Downey (Intern)
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PBC Prepared by client
Cash Lead Sheet
Tick Legend
Cash Lead Sheet
Simply Soups Inc.
As of December 31, 2013
Account
10001
Fifth Federal
10002
SparkasseFrankfurt
10003
American
NorthWest Bank
10004
BNY Federal
10005
Tenth National
Bank
10006
Bank of Citizen
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TB Agreed to 12/31/2013 Trial Balance without exception.
PQ Agreed to 9/30/2013 Trial Balance without exception.
PY Agreed to 12/31/2012 Trial Balance without exception.
Change Change
Change Change
from
from
from
12/31/12
9/30/13 to 9/30/13 to
12/31/12 to
to
Balance
Balance
12/31/13 12/31/13 Balance
12/31/13 12/31/13
12/31/13 TB 9/30/13 PQ
($)
(%)
12/31/12 PY
($)
(%)
$478,922
$492,531
($13,610)
-2.76%
$489,120
-$10,198
-2.09%
$235,087
$229,791
$5,296
2.30%
$231,686
$3,401
1.47%
$144,020
$151,675
($7,655)
-5.05%
$149,277
-$5,257
-3.52%
$477,832
$462,403
$15,429
3.34%
$469,513
$8,319
1.77%
$301,015
$311,653
($10,638)
-3.41%
$316,987
-$15,972
-5.04%
$348,702
$309,243
$39,458
12.76% $311,785
$36,917
11.84%
Bank Reconciliation Summary
Account
10001
Fifth Federal
10002
Sparkasse-Frankfurt
10003
American NorthWest Bank
10004
BNY Federal
10005
Tenth National Bank
10006
Bank of Citizens
Bank
Balance
12/31/13
A
Book
Reconciling
Balance
B 12/31/13 TB
Items
$508,219
$29,298
$478,922
$315,712
$80,624
$235,087
$121,987
($22,033)
$144,020
$493,154
$15,322
$477,832
$312,580
$11,565
$301,015
$304,312
($44,389)
$348,702
Tick Legend
A Agreed to 12/31/2013 Bank Statements without exception.
B Reconciling items were tested without exception, see Bank Test Documentation (Audit Step 1000-3).
Agreed to 12/31/2013 Trial Balance without exception.
TB 18
Bank Account Listing
Bank Name
Bank Address
Bank Manager
Account Account Authorized
Name Numbers
Signer
Fifth Federal
73 Union Street
New York NY 10001
George Williams
Checking
675-42223 Lou Jennings
Sparkasse-Frankfurt
Landstrasse 89-21
Frankfurt 60326 DE
Helga Jones
Checking
44-322711 Lou Jennings
Richard Johnson
Checking
05-198305 Lou Jennings
BNY Federal
3621 Avenue De
Lafayette Boston MA
02111
Betty Smith
Savings
061-22031 Lou Jennings
Tenth National Bank
313 S. Chadwick Street
Philadelphia PA 19103
Greg Fordham
Savings
26-798422 Lou Jennings
Bank of Citizens
3621 Union Ave Denver
CO 80220
Denise Bentley
Checking
89-123661 Lou Jennings
American NorthWest 234 Market Street
Bank
Milwaukee WI 53202
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Overview of Steps
Task
Date
Initial
Register at edu.Confirmation.com
Watch 3-minute tutorial
Review client documents and audit workpapers
Assess controls in place around the
edu.Confirmation.com service
Set up client
Enable sharing for team members*
Add bank accounts
Request Client Authorization Code approval
(client’s electronic signature)
Initiate confirmations
Evaluate responses
Initiate second requests or reconfirmations
Evaluate responses and complete deliverables
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
* This step is only necessary if teams are used.
Confirmation Testing Workpaper
Confirmation Testing Workpaper
Simply Soups Inc.
As of December 31, 2013
Reconciled Bank
Balance as of
12/31/13
(per Client)
Account
10001 Fifth Federal
10002 Sparkasse-Frankfurt
10003 American NorthWest Bank
10004 BNY Federal
10005 Tenth National Bank
10006 Bank of Citizens
A
Confirmed Bank
Balance as of
12/31/13 (per
Bank)
$508,219.33
$315,711.76
$121,987.17
$493,154.12
$312,580.29
$304,312.43
Tick Legend
A Balances were traced from Bank Reconciliation Testing Summary (WP 100-2).
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STUDENT WORKPAPER DELIVERABLE
Differences Noted
Evaluating Responses
1. Agree confirmed detail to the bank
account listing on the key information
summary;
2. Agree confirmed balances to the reported
bank balance on the bank reconciliation
testing summary;
3. Is the confirmation persuasive audit
evidence?
NOTE: If the confirmation is not persuasive
audit evidence, additional confirmation
requests may be sent or alternate procedures
may be performed.
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
Deliverables
1. Completed Audit Procedure Checklist
2. Completed Confirmation Testing Workpaper and
Memo
Workpaper:
• Evaluation of initial confirmations
• Evaluation of reconfirmations or second confirmations (where
necessary)
• Any additional steps or risks
Memo:
• Purpose for sending positive confirmations
• Reasons for using a third-party intermediary
• Risks involved in using a third-party intermediary
• Steps taken to gain comfort over such risks
• Assessment of whether the work performed provides the basis to
reach a conclusion on the financial statement assertions tested
3. Confirmation Log
4. Received Confirmations
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
Audit Team
• Some of the audit procedures for
obtaining audit evidence for CASH has
already been performed by:
– Audit Intern
– Audit Associate
• Instructor serves as the Audit Manager
Students may work individually or in groups!
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
End of Session ONE
QUESTIONS?
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© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.