CASE 9.1 Wally's Billboard & Sign Supply The Audit of Cash

CASE 9.
1 Wally's
Billboard & Sign Supply The Audit of Cash
MARK S. BEASLEY FRANK A. BUCKLESS STEVEN M, GLOVER · DOUGLAS F.
PRAWITT
LEARNING OBJECTIVES After

completing and discussing this
case you should be able to [1] Understand the objectives of
substantive audit [3] Identify and assess factors important when
procedures relating to the audit of cash balances evaluating the sufficiency and
appropriateness of [2] Consider the effectiveness and reliability of audit different types
of audit evidence
procedures
[4] Understand the layout and content
of the
standardized bank confirmation
form.
INTRODUCTION
Wally's Billboard & Sign Supply, Inc. was founded four years ago by Walter
Johnson. The company specializes in providing locations for sign and billboard
advertising and has recently begun to enter the sign design market. After working
several years in the marketing department of a large corporation, Wally decided that
there was a need in his area for a company specializing in signs and billboards.
Drawing on his marketing experiences, he started his own company.
The company is now preparing to expand its business and has enlisted the
help of your firm, Taylor & Jones, LLP. Over the past two years your firm has
provided auditing and assurance services to prepare the company to seek badly
needed outside funding. Along with Bill Thompson, a senior auditor, you have been
assigned to help with the annual audit.
Your assignment is to conduct substantive testing of the company's cash balances.
Bill has already conducted tests of controls for each of the company's transaction cycles
and has assessed control risk as relatively low in those cycles. He has also inquired of
management regarding any restrictions imposed by external parties on the use of
cash. Management assured him there are no such restrictions, but you plan to
corroborate this response using bank confirmations.
Wally's Billboard & Sign Supply currently has three separate bank accounts.
The first is a general account used mostly for business expenses and receipts. When
payments are collected they are deposited, along with any cash sale receipts, in the
general account. The second account is a payroll account. Funds are transferred
twice a month to this account from the general account to cover payroll. The third
account is an interest bearing account that the company uses to maintain extra cash
for future needs. For this assignment, you will not be required to test intrabank transfers.
The case was prepared by Mark S. Beasley, Ph.D. and Frank A. Buckless, Ph.D. of North Carolina State University and
Steven M. Glover, Ph.D. and Douglas F. Prawitt, Ph.D. of Brigham Young University, as a basis for class
discussion. Wally's is a fictitious company. All characters and names represented are fictitious; any similarity
to existing companies or persons is purely coincidental.
© 2015 Pearson
Education, Inc.
249
Section 9: Auditing Cash, Fair
Value, and Revenues
REQUIRE
D
Complete the audit program found on working paper C 2, recording all your work on
the audit program and marking the provided documents (using auditing tick marks
such as the ones used on the cash lead sheet—working paper C 1) to serve as your
working papers. Document the results of your work on the Audit Summary sheet
(working paper C 3), noting any errors, concerns, adjustments, and/or
recommendations. If you make adjustments to the ending account balances, enter the
adjustments on the cash lead sheet. Note, you may also download electronic versions of the
working papers from www.pearsonhighered.com/beasley. After completing the
audit program, answer the following questions: [1] Why is the audit of
cash an important part of the audit? [2] Bill performed tests of controls
for all transaction cycles with good results. Why is it important
to also perform substantive audit procedures for the ending cash balance even
when tests of controls over transactions that affect the cash account indicate that
those controls are operating
effectively? [3] According to AICPA auditing standards, what are the
necessary ingredients for audit evidence
to be considered “appropriate"? [4] For each procedure listed in the
audit program (schedule C2), indicate the primary assertion(s)
targeted by the procedure. [5] For each error, concern, or adjustment you listed
on the Audit Summary (schedule C 3), briefly
describe at least one additional test you could perform to gain evidence as to whether or
not the cash account is materially misstated.
[6] The AICPA and the American Banker's Association developed a standardized
bank confirmation
form—see working paper C 6. What is the purpose for confirming information in
item number two on the bank confirmation form? Identify the accounts and related audit
assertion(s) to which the information in item number two is relevant.
[7] What audit procedures might you perform if you were to decide that the risk of
fraud involving
the cash account was relatively high for this client? [8] Perform an online search
for "electronic bank confirmations." Summarize in one page or less
what you learn about recent developments in the use of web-based bank
confirmations. Include a brief discussion of the advantages of electronic
confirmations in your write-up.
250
© 2015 Pearson
Education, Inc.
Case 9.1: Wally's Billboard & Sign Supply
Reference: Prepared by: Date: Reviewed by:

1/16/2015
Wally's Billboard & Sign Supply

Cash Lead Sheet For the Year Ended December 31, 2014
Account Number and Name 10100 Petty Cash

2014 Ending Balance
2014 Adjusted Ending Balance
Net Adjustments
2013 Ending Balance
% Change
(before adjustment)
$
216 GL
0
216
$
200
8.00%
PY
10200 Bank, General

97,431
3.41%
100,750
GL
PY
10225 Bank, Payroll

3,923
1,500 GAL
-61.76%
PY
10250 Bank, Savings
73,341
14.57%
84,024
GAL $ 186,490
PY
Total
$ 174,895
Tickmark Legend GLL - Agreed to General Ledger PY - Agreed to prior years'

workpapers F- Footed without Exception I - Traced amount to physical count on
working paper C-14
© 2015 Pearson Education, Inc.

251
Section 9: Auditing Cash, Fair Value, and Revenues
C-2
Reference: Prepared by:
Date:
1/16/2015
Reviewed by:
Audit Program for Cash For the Year Ended December 31, 2014
Audit Procedures
Initial
Date
Ref.
1. Obtain Cutoff Bank Statements and

Confirmations returned by the bank, scan and
review. 2.
Obtain copies of client's bank reconciliations
and perform the following for each account: A. Test the mathematical accuracy of
each bank reconciliation. B. Trace the line item "Balance Per Bank Statement on each
bank reconciliation to the related Bank Confirmation and to the Cutoff Bank Statement C.
Trace the check number and amount of outstanding items on each bank reconciliation
to the corresponding Cutoff Bank Statement. D. Trace the date, check number, and
amount of outstanding items on each bank reconciliation to the corresponding entry in
the Cash Disbursement Journal. E. Trace the amount of any deposits in transit on
the bank reconciliation to the Cutoff Bank Statement and then to the Cash Receipts
Journal. Investigate unexpected timing differences. F. Trace the line item “Undeposited
Cash Receipts” from each bank reconciliation to the
Undeposited Cash Receipts List. 3. In the presence of client personnel, count cash
on hand following proper procedure. 4. Inquire with management about cash
restrictions and review response for disclosure needs.
| BT
1/12/2015 |
C-14
BT
1/12/2015
252
C-3
1/16/2015

Audit Summary For the Year Ended December 31, 2014
Working Paper
Reference
Description of Error or Concern
253

1/16/2015
Wally's Billboard & Sign Supply Selected Portions of the Cash Receipts
Journal
T755
390
Wally's Billboard & Sign Supply Cash Receipts Journal
Bank Account Debit Credit Date Description
General Payroll A/R Other 12/23 Brought Forward
$13,750 $0 $7,500 $6,250 12/24 Total Cash Sales
400
400 12/27 Daily A/R Collections
755 12/27 Total Cash Sales
400
400 12/28 | Daily A/R Collections
800
425
425 12/28 Payroll from General Account
5,725
5,725 12/29 | Daily A/R Collections
725
725 | 12/29 Total Cash Sales
740
315
315 12/31 | Daily A/R Collections 12/31 | Total Cash Sales
300
300 December Totals
$19,730 $5,725 $11,250 $14,205 1/1 Beginning Balance 1/3 | Daily A/R Collections
400
725
725 1/5 | Total Cash Sales
425
800
400
415 117 Daily AR Collections
745 1745 January Totals
$5,460
$3,095 $2,365
730
730
825 725
415
254

1/16/2015
Wally's Billboard & Sign Supply Selected Portions of the Cash

Disbursements Journal
Wally's Billboard & Sign Supply Cash Disbursements Journal

Cash Credit Payee
G/L Account # | General Payroll
I
$3,250
700 950 650 700 75 85
Greg's Signs Jones Printing Western Paper
Taylor Inc Waszte Removal Inc. Newport Promotions Magneto Industrial Aurora
City Power Office City Young Promotions Sign Solutions
Date Check # Description
Brought 12/23
Forward 12/24 5721 Inventory 12/24 5722 Inventory 12/26 5723 Inventory 12/27 5724
Inventory 12/27 5725 Utilities 12/28 5726 Inventory 12/28 5727 Inventory 12/29 5728
Utilities 12/29 5729 Office Supply 12/29 5730 Advertising 12/30 5731 Inventory
Payroll Bank 12/30
Transfer 12/30 10123 Paycheck 12/30 | 10124 Paycheck 12/30 10125 | Paycheck
12/30 | 10126 Paycheck 12/30 | 10127 Paycheck 12/31 December Totals
80100 80100 80100 80100 82000 80100 80100 82000 67000 66000 80100
225
210
75 150
675
5,725
Sunnydale Bank Wally Johnson Tricia Holmes John Riley Jane Harris Steve Norton
10000 69100 69100 69100 69100 69100
2,310 1,200
925 665
625 $5,725
$13,470
1,750 525 430 350

1/4
1/3 5732 Rent Payment 1/3 5733 Inventory 1/3 5734 Inventory 1/3 5735 Inventory
5736 Building Supply 1/4 5737 Board Dues 1/4 5738 Janitorial 1/6 5739 New Printer
1/7 5740 Janitorial | Carried Forward
LLD Property Inc. Merida Manufacturing Greg's Signs
Jones Printing Haroldson Hardware Colorado Board TTC Janitorial Duff Computers
W Lawn Care
69000 80170 80100 80100 68010 69200 68000 67000 68000
50
125 100
225
50
$3,605
$0

255
C-6
1/16/2015
Reference: Prepared by: Date:
Reviewed by: STANDARD FORM TO CONFIRM ACCOUNT
BALANCE INFORMATION WITH FINANCIAL
INSTITUTIONS
ORIGINAL To be mailed to accountant

CUSTOMER NAME
Name and Address

Financial Institution's
Woodland National Bank 530 Stadium Ave Provo, UT 84604
We have provided to our accountants the following information as of
the close of the business on December 31, 2014, regarding our deposit and loan balances. Please
confirm the accuracy of the information, noting any exceptions to the information provided. If the balances have
been left blank, please complete this form by furnishing the balance in the appropriate space below.* Although we do not
request nor expect you to conduct a comprehensive, detailed search of your records, if during the process of
completing this confirmation additional information about other deposit and loan accounts we may have with you
comes to your attention, please include such information below. Please use the enclosed envelope to return the
form directly to our accountants.
1. At the close of business on the date listed above, our records indicated the following
deposit balance(s):
ACCOUNT NAME
ACCOUNT NO.
INTEREST RATE
BALANCE*

0504-02
NA
$100,515
2. We were directly liable to the financial institution for loans at the close of business on
the date listed above as follows:
ACCOUNT NOJ DESCRIPTION

DATE THROUGH WHICH
INTEREST IS PAD
BALANCE*
DATE DUE
INTEREST RATE
DESCRIPTION OF COLLATERAL
Welly Johnson (Customer's Authorized Signature)

1/2/2015
(Date)
The information presented above by the customer is in agreement with our records. Although we
have not conducted a comprehensive, detailed search of our records, no other deposit or loan
accounts have come to our attention except as noted below.
01/10/2015
(Date)
Cindy Lunt (Financial Institution Authorized Signature)
Clerk (Title)
EXCEPTIONS AND OR COMMENTS
Please return this form directly to our accountants:

| Taylor & Jones LLP
Certified Public Accountants 717 East Bay Drive Aurora, CO 73442
* Ordinarily, balances are intentionally left blank if they are not available at the time
the form is prepared.
.
Approved 1990 by American Bankers Association, American Institute of Certified Public Accountants, Bank
Administration Institute. Additional forms available from: AICPA - Order Department, P.O. Box 1003, NY, NY 10108-1003
merican Banke AlCP

D451 5951
256
Case 9.1: Wally's
Billboard & Sign Supply
C-
7
Reference:
Prepared
by: Date:
Reviewed
by:
1/16/2015
Wally's Billboard & Sign Supply Cutoff Bank

Statement from Woodland National Bank
Woodland National
Bank
530 Stadium
Ave Provo,
UT 84604
Statement of account #0504-02
Statement Date: 1/01/2015 - 1/10/2015 Cutoff
Statement
Wally's Billboard & Sign

Supply
Date
Amoun
t
Transaction Description Previous Balance
New Balance $100,515
1/1
Check #5723 Deposit

-650 1,030
99,865 100,895
Check
#5725
-75
100,82
0
Check #5729 Check #5727

Deposit
-75 -225
100,745 100,520 101,345
825
Check # 5731 Deposit

-675
725
100,67
0
101,39
5
11
9
Check #5732 Check # 5734
Deposit
Check #
5735 Check
# 5736
Deposit
-1,750
-430 1,125 -350
99,645
99,215
100,34
0
99,990
99,940
100,99
5
-50
1,055
1/10
Deposi
t
1.225
102.220
1/11
Balanc
e
$102,2
20
© 2015 Pearson
Education, Inc.
257

C-8 PBC 1/16/2015
Wally's Billboard & Sign Supply Bank Reconciliation for Woodland National
Bank (Prepared by Client)
For the Month Ended December 31, 2014
Wally's Billboard & Sign Supply Bank Reconciliation for Woodland National Bank
Balance Per Bank Statement:

$100,515
Add:
Date
12/30
Amount
1,055
Deposits in Transit:
Undeposited Cash Receipts:

12/31
1,030
2,085
Deduct:
Outstanding Checks
Date Issued Number
12/26
5723 12/27
5725 12/28
5727 12/29
5729 12/29
5730 12/30
5731
Amount
650
75 225
75
150 675
(1,850)
Book Balance
$100,750
258

C-9
Reference: Prepared by: Date:
Reviewed by: STANDARD FORM TO CONFIRM ACCOUNT
BALANCE INFORMATION WITH FINANCIAL
INSTITUTIONS
1/16/2015
ORIGINAL To be mailed to accountant
CUSTOMER NAME
Financial Institution's "Sunnydale Banking Co. Name and 267 West Irvine St.
Address
Aurora, CO 73454
We have provided to our accountants the following information as of
the close of the business on December 31, 2014, regarding our deposit and loan balances. Please
confirm the accuracy of the information, noting any exceptions to the information provided. If the balances
have been left blank, please complete this form by furnishing the balance in the appropriate space below.* Although we do
not request nor expect you to conduct a comprehensive, detailed search of your records, if during the process of
additional information about other deposit and loan accounts we may have with you
completing this confirmation
comes to your attention, please include such information below. Please use the enclosed envelope to return the
form directly to our accountants.
1.
At the close of business on the date listed above, our records indicated the
following deposit balance(s):
ACCOUNT NAME
ACCOUNT NO.
INTEREST RATE
BALANCE*

Payroll Account
6315-789
N/A
$3,625
2.
We were directly liable to the financial institution for loans at the close of
business on the date listed above as follows:
ACCOUNT NO/
10! DESCRIPTION
DATE THROUGH WHICH
INTEREST IS PAID
BALANCE*
DATE DUE
INTEREST RATE
DESCRIPTION OF COLLATERAL
Welly Johnson
1/2/2015
(Customer's Authorized Signature)
(Date)
The information presented above by the customer is in agreement with our

records. Although we have not conducted a comprehensive, detailed search of our
records, no other deposit or loan accounts have come to our attention except as noted below.
Tim Merkley (Financial Institution Authorized Signature)

01/01/2015
(Date)
(Title)
EXCEPTIONS AND OR COMMENTS
Please return this form directly to our accountants:

Taylor & Jones LLP Certified Public Accountants 717 East Bay Drive Aurora,
CO 73442
* Ordinarily, balances are intentionally left blank if they are not available at the time
the form is prepared.
D451 5951
Approved 1990 by American Bankers Association, American Institute of Certified Public Accountants, Bank Administration
Institute. Additional forms available from: AICPA -Order Department, P.O. Box 1003, NY, NY 10108-1003
259
C-10
1/16/2015
Wally's Billboard & Sign Supply Cutoff Bank Statement from Sunnydale Banking Co.
Sunnydale Banking Co.

267 West Irvine St. Aurora, CO 73454
Statement of account # 6315-789 Statement Date: 1/01/2015 - 1/10/2015 Cutoff

Statement
Amount
Date 1/1
Transaction Description Previous Balance
New Balance
$3,625
1/4
Check # 10124
2,425
-1,200
-925
1/4
Check # 10125
1,500
1/10
Balance
$1,500
260
C-11
1/16/2015
Wally's Billboard & Sign Supply Bank Reconciliation for Sunnydale Bank Co.
(Prepared by Client)
Wally's Billboard & Sign Supply Bank Reconciliation for Sunnydale Bank Co. For
the Month Ended December 31, 2014
Balance Per Bank Statement:

$ 3,652
Add:
Date
Amount
Deposits in Transit:
Undeposited Cash Receipts:
Deduct:
Outstanding Checks
Date Issued Number
12/30
10124 12/
30
1 0125
Amount
1,200
925
(2,125)
Book Balance
$ 1.500

261
C-12
1/16/2015
JAN-16-2015 01:15 PM Brigham Nat'Bank

FAX NO. 3037586842
P.01/01
BRIGHAM NATIONAL BANK

155 North State, Aurora, CO 73451
January 16, 2015
Taylor & Jones Certified Public Accountants 717 East Bay Drive Aurora, CO 73442
Dear Taylor and Jones,
In response to your request of confirmation for audit purposes of Wally's Billboard &
Sign Supply, Inc., we have provided the following account balance information:
Account Name Wally's Billboard & Sign Supply, Inc.

Account Number
73647-1234
Interest Rate
ΝΙΑ
Balance $ 84,024
This information is CONFIDENTIAL and is provided by the written permission of

the party named herein. Any use of this information without consent of all parties is
strictly prohibited.
Sincerely,
Gretchen Layon
Gretchen Larson
262
Case 9.1: Wally's
Billboard & Sign Supply
C-13
Referenc
e:
Prepared
by: Date:
Reviewed
by:
1/16/2015
Wally's Billboard & Sign Supply Bank Reconciliation for

Brigham National Bank (Prepared by Client)
For the Month Ended
December 31, 2014
Wally's Billboard & Sign Supply Bank

Reconciliation for Brigham National
Bank
For the Month Ended
December 31, 2014
Balance Per Bank

Statement:
$84,02
4
Add
:
Date
Amount
Deposits
in Transit
Le To
Undeposited Cash
Receipts:
Deduct:
Outstanding
Checks
Date Issued Number
Amount
Book
Balance
$84,02
4
© 2015 Pearson
Education, Inc.
263
C-14
1/16/2015
Wally's Billboard & Sign Supply Undeposited Receipts and Cash on-hand For the
Month Ended December 31, 2014

Undeposited Cash Receipts All for deposit in Woodland National Bank For the month
ended December 31, 2014
Date
Name 12/31 Hardy Real Estate 12/31 Hamilton Homes 12/31 Washington Banker
12/31 Daily Cash Sales
Total
Amount
$200 315 215
300
$1,030
Cash on hand for general business purpose. Denomination

#counted $20
Total
$140
10
5
$216
The above cash receipts for deposit and cash on hand have been examined and
verified as of the close of business on 12/31/2014.
Bill Thompson- Senior Auditor
Tickmark Legend
- Traced amount to cash lead sheet on working paper C-1.
264

CASE 9.1 Wally's Billboard & Sign Supply The Audit of Cash

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CASE 9.

LEARNING OBJECTIVES After

Reference: Prepared by: Date: Reviewed by:

Wally's Billboard & Sign Supply

Account Number and Name 10100 Petty Cash

10200 Bank, General

10225 Bank, Payroll

Tickmark Legend GLL - Agreed to General Ledger PY - Agreed to prior years'

© 2015 Pearson Education, Inc.

1. Obtain Cutoff Bank Statements and

Wally's Billboard & Sign Supply

Reference: Prepared by: Date: Reviewed by:

Reference: Prepared by: Date: Reviewed by:

Wally's Billboard & Sign Supply Selected Portions of the Cash

Wally's Billboard & Sign Supply Cash Disbursements Journal

1,750 525 430 350

© 2015 Pearson Education, Inc.

ORIGINAL To be mailed to accountant

Name and Address

Wally's Billboard & Sign Supply

ACCOUNT NOJ DESCRIPTION

Welly Johnson (Customer's Authorized Signature)

EXCEPTIONS AND OR COMMENTS

Please return this form directly to our accountants:

merican Banke AlCP

Wally's Billboard & Sign Supply Cutoff Bank

Wally's Billboard & Sign

Check #5723 Deposit

Check #5729 Check #5727

Check # 5731 Deposit

Reference: Prepared by: Date: Reviewed by:

Balance Per Bank Statement:

Undeposited Cash Receipts: