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Regina Case

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Submitted By helenenou09
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Regina Company, Inc.

1. I have attached an excel spreadsheet of Regina’s common-sized financial statements. I have included key ratios and highlighted high-risk financial statement line items regarding the 1988 audit.

2. Audit procedures that might have resulted in Peat Marwick discovering the $5 million bogus sales and the intentional understatement of the company’s sales return are: (http://smallbusiness.chron.com/audit-procedures-revenue-cycles-15750.html) a. Checking the trial balance that the accountant creates at the end of the cycle b. Confirming receivable amounts with the company or person who owes money and evaluating the accuracy of the allowance for uncollectible accounts by reviewing the history of the entity. They also include vouching, tracing and performing cutoff tests for all sales, sales returns and cash receipts. c. Examines all documentation related to a customer and relating journal d. Sales cutoff test. Trace shipping documents immediately prior and just after accounting period to the accounting records. Focus on FOB shipping point and FOB destination. e. Cash receipts cutoff test. Trace daily remittance of payments to accounts receivable credits.al entries

3. Most merchandising and manufacturing clients’ record a sale based on shipment of goods criterion. Audit objectives for sales cutoff focus on ensuring that sales are recorded in the proper period. f. Fraudulent errors the test would have uncovered. i. $6 million of ship in place sales ii. Understated sales return by at least $13 million iii. Earnings of $180 million overstated to reach its target sales for 1988
Auditors would be able to verify the cutoff by obtaining the shipping document number for the last shipment made at the end of the period and comparing this number with current and

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