EarthWear Hands-on Mini-case Chapter 5 and Chapter 6

EarthWear Hands-on Mini-case
Chapter 5 – Inventory Testing
© The McGraw-Hill Companies, Inc., 2012

In this mini-case you will test inventory for EarthWear Clothiers. EarthWear has a calendar year-end and conducted their inventory observation on January 1, 2013. Inventory was counted at two different foreign distribution centers (Germany and Japan) where the international inventory is stored. There was no movement of inventory on January 1st. A brief description of the Inventory Count process has been provided below. Additional information regarding inventory counts is available in Chapter 13.

INSTRUCTIONS:

1 To test the completeness of inventory (i.e., “floor to sheet”), begin with Work Paper 5-1 and note that some inventory items have already been completed. For the inventory items not yet completed, locate the corresponding Inventory Count Tag and record the quantity from the tag onto Work Paper 5-1 (The Inventory Count Tags and Inventory Status Reports are PDF files that you download from the website – a link is also provided below). Then locate the item on the Inventory Status Report and enter the quantity recorded onto Work Paper 5-1. Compare the two quantities recorded and if the count differs for an inventory item, briefly describe which management assertion(s) appear to be violated.
Fields you are to complete on work papers are colored yellow. The color will disappear when the field is completed.
“You should download the PDF files required to complete this case from the
EarthWear Mini-Cases section of the Student Online Learning Center.”
http://www.mhhe.com/messier8e

2 To test the existence of inventory (i.e., “sheet to floor”), enter the quantities from the Inventory Status Report downloaded from the website for the items indicated on Work Paper 5-2. Some inventory items selected for review have already been completed. Please note that the order of the Inventory Status Report and Inventory Count Tag columns is the reverse of Work Paper 5-1 to reflect the change in the order of observation (i.e., switching from “floor to sheet” to “sheet to floor”). Then locate the Inventory Tag in the PDF files downloaded from the website to confirm the existence and accuracy of the inventory item. In an actual inventory observation, the auditor would make selections from the Inventory Status Report and the client would take the auditor to the actual inventory item and the attached count tag. For this exercise, you will vouch the selections from the Inventory Status Report (i.e., the “sheet”) to the tag provided in the file above (i.e., the “floor”). Compare the quantity from the Inventory Status Report with the quantity on the tag. For inventory items where the counts differ, briefly describe which management assertion(s) appear to be violated.
Fields you are to complete on work papers are colored yellow. The color will disappear when the field is completed.

3 When you are finished with steps 1 and 2, enter your initials in the yellow box in the upper right-hand corner of Work Paper 5-1 and Work Paper 5-2 (box indicates “Initial Here”).

EarthWear Hands-on Mini-case
Chapter 16 – Audit of Cash
© The McGraw-Hill Companies, Inc., 2012

In this mini-case you will audit and evaluate documents such as bank confirmations and bank reconciliations in the audit of one of EarthWear’s cash accounts. The company has several other cash accounts at various banks; you will focus on only EarthWear’s primary general cash account used mostly for cash receipts and various business expenses. When payments on accounts receivable are collected from customers the cash is deposited, along with any cash from cash sales, in this general account. Steve Alsop, an audit senior for Willis & Adams, CPAs, has completed several of the audit steps in the substantive audit program for the cash account you will examine in this mini-case. There are five audit steps remaining that he has asked you to complete.

INSTRUCTIONS:

Read all steps in the audit program for cash found on Work Paper 16-1 and familiarize yourself with work papers 16-1 through 16-7. Complete steps 2, 3, 5, 9, 10, and 12. Be sure to document your work using the designated tick marks. You will select the correct tick mark from the drop down menu in the highlighted cells on each work paper. The tick mark legend is located at the bottom of each work paper. If you find an error in performing a procedure, select “Error” from the drop down menu. When you have completed each step, document the results of your work, noting any errors, concerns, adjustments, and/or recommendations on Work Paper 16-1.
Fields you are to complete are colored yellow. The color will disappear as the field is completed.

When you are finished with each work paper, enter your initials in the yellow box with title “Initial Here.”

On the worksheet labeled “Evaluation”, identify at least one assertion substantiated (tested) by the audit procedures you performed (steps 2, 3, 5, 9, 10, and 12 listed in Work Paper 16-1) and identify what potential errors could be detected by performing the procedure.

Please print a hard copy of the Evaluation worksheet and Work Papers 16-1, 16-2, 16-3, 16-4, 16-5, 16-6, 16-7 to submit in class unless otherwise indicated by your instructor. The work papers are formatted to fit on one page.

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