01 Jul Final audit report assignment
Write a financial audit report reflecting a qualified opinion. Any scope limitations or violations from GAAP are not significant enough to cause a disclaimer due to issues of materiality. Although the Sam’s Super Deli is privately owned, it has borrowed money from a local bank. The investment group that owns the bank requires the audit report done in accordance with GAAP for the year ending December 31, 2016.
The report should expose departures from GAAP standards; be specific. What evidence of the departure from GAAP do you have? Be sure to be specific enough so that your client can make your recommended changes. Do not forget to mention what the company is doing right as well as wrong. Create a nice tone to meld the two together sounding positive while pointing out what is not conforming. Mention opportunities for improvement.
Your qualified opinion is based on the following facts. A few sentences addressing each will be enough.
• Petty cash is $1000 which seems excessive. The cash is used for office supplies, lunches and other minor expenses. The receipts rarely tie to the cash box. Also, the office supplies are being directly expensed to the income statement instead of being capitalized and expensed as they are used.
• The year-end inventory was taken before the start of the audit; you were not there for the inventory.
• The company is using replacement cost as opposed to lower of cost or market.
• A delivery truck purchased for $7000 was expensed rather than capitalized. The owner based this on the assumption that the truck would have only two years of useful life.
• Some of the accounts payable invoices and aging schedules are not available as three boxes of documentation were damaged by a water heater flooding the area where those records are kept.
• In December, a paycheck was issued to the owner for $50,000. The owner then gave the employees cash bonuses equal to the net amount of his/her paycheck. it is up to you to decide if this is a departure from GAAP or a justifiable way to give bonuses. An argument could be made either way. Only refer to GAAP; don’t mention any IRS issues or ramifications regarding this transaction.
The audit report should have only the following:
Title page, Introduction, Body, Conclusion, any Appendices (if you must have them).
Your report should be two- three pages, maximum, NOT counting the title page and any appendices you may use.
Do not use boilerplate language. Find a way to write this report in plain, clear, and concise English. You want your client, Sam, to understand what you have written.
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