Mini Audit Project

Your firm, ACTG 307 & Associates, is engaged to audit the financial statements of XYZ Corporation. It is a private manufacturing company that is considering going public in three to four years.  Your firm has been preforming audit services to this client for the past five years.  The client requires financial statements audits for monitoring purposes, but mainly to receive finance and loans from banks.  The management team has high level of competence and integrity, and based on the other team’s assessment of internal control, the control risk is low.

Another team did most of the audit tests and completed most of the audit work papers.  Your team is assigned to complete the work papers and audit tests of the engagement. Specifically, your team is required to do the following:

1. Write an engagement letter, dated 11/6/2020, by completing WP 2-1.
2. Perform the preliminary analytical procedure WP 3-1 and 3-2 and comment on:
   1. The client liquidity, profitability and solvency.
   2. The client ability to continue as a going concern.
3. Assess the preliminary materiality based on the policy provided (WP 1-13), and complete WP 3-5, assuming moderate risk and satisfactory results of the analytical procedures.
4. Complete the audit of the accounts receivables:
   2. Calculate the sample size for A/R confirmation by following steps in WP 25-2.
   3. Assume that you received answers for all of the confirmations and only one of them indicated that the balance is wrong. The balance recorded is $598,000, but the correct amount is $589,000. Prepare an adjusting entry on WP 25-5.
   4. Complete the A/R lead sheet WP 25-1, and complete the conclusions box by stating whether this account is fairly stated or not. (Ignore the allowance for doubtful accounts).
5. Complete the audit of inventory:
   101. Assume that all the steps of the inventory audit program were done and the misstatements were only found in the machinery account, AC# 200-101.
   102. You need to complete WP 30-1, 30-5 and 30-15.
6. Assuming that all other tests came to be satisfactory, prepare an audit report (dated 2/21/2021) assuming that:
   1. The client made the suggest adjusting entry.
   2. The client did not do the adjusting entry (only if different from the above one).

Complete the project by having all of the required work papers with a cover page that has your group number and names of the group members, in one word document