2019 AICPA Newly Released Simulations—Auditing

AUDITING
2019 AICPA Newly
Released Sims

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 2019 AICPA Newly Released Simulations—Auditing

FINAL AUD Simulation 500220 Task (2176)

Unit & Sim # to be Assigned To: A4_Sim 1

Substantive Analytical Procedures (AICPA
Sim Task Name:
R-2019)
Skill Level: Analysis
Representative Task: AIII-C1.3

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FINAL AUD Simulation 500220 Options List

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FINAL AUD Simulation 500220 Exhibits

FINAL AUD Simulation 500220 Blueprint Information

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FINAL AUD Simulation 500220 Solution

Row 2: Review sales and related product cost data.

The auditor expected a gross profit of 2 percent (similar to the prior year), but the actual gross profit was much higher, at
12 percent. The client's explanation is that it sold more expensive products with a higher gross margin during the year.
The auditor should review sales data and related product cost data to validate this explanation. Once the sales and
related product data is obtained, the auditor can calculate the gross margin [(Sales – COGS) ÷ Sales] and evaluate
whether the 12 percent gross profit margin is reasonable.

Row 3: Examine new debt agreement.

The auditor expected the interest expense to increase as a result of an increase in debt. However, the interest expense
stayed the same and the client explained that the reason the interest expense stayed the same was because the debt
was refinanced during the year. The auditor should examine the new debt agreement for the interest terms and amount of
debt refinanced to verify that the interest expense is appropriately recorded. It is possible that the refinancing resulted in
additional debt obtained but at a lower rate of interest, resulting in approximately the same amount of interest expense for
the year.
Note: Obtaining the new debt agreement is not sufficient to validate the client's explanation. The auditor needs to actually
examine the new debt agreement.

Row 4: Review repairs and maintenance accounts for proper classifications.

The auditor expected that the amount of acquisitions of property, plant, and equipment would be similar to the prior year,
but the actual amount of acquisitions in the current year decreased significantly. The client explained that there were no
changes to its acquisition practices. As a result, the auditor should review the repairs and maintenance accounts. The
auditor will be looking for items in the repairs and maintenance account that should have been capitalized in property,
plant, and equipment.

Note: Selecting items of equipment from accounting records and then locating them during the plant tour would have been
performed if the amount of acquisitions significantly increased from the prior year. Then the auditor would have wanted to
validate the existence of the property, plant, and equipment.

Row 5: Review sales returns subsequent to year-end.

The auditor's expectation is that January orders might be shipped in December. The actual results show that sales have
increased over the last three years, which management attributes to increased marketing efforts. The auditor should
review sales returns subsequent to year-end. If the amount of returns is large, this may suggest that the company shipped
more goods prior to year-end than customers authorized.

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Row 6: Review depreciation policies.

Based on industry practices, the auditor expects few losses on retired assets. However, the client has excessive recurring
losses on assets retired, which the client attributes to increased asset usage. An asset is retired when it is no longer being
utilized. When an asset is retired at a loss, the following journal entry is made:

DR: Loss

DR: Accumulated depreciation

CR: Old asset at full cost

This removes the asset and its related depreciation from the accounting records. The auditor should review the
depreciation policies, as the client's depreciation policies may not accurately represent the use of the asset.

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 2019 AICPA Newly Released Simulations—Auditing

FINAL AUD Simulation 500717 Task (2177)

Unit & Sim # to be Assigned To: A4_Sim3

Sim Task Name: Research (AICPA R-2019)
Skill Level: Application
Representative Task: AI-E2.1

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FINAL AUD Simulation 500717 Exhibits

FINAL AUD Simulation 500717 Blueprint Information

FINAL AUD Simulation 500717 Solution

AU-C 265.13
Keywords: significant deficiencies those charged with governance

Search:

Select AICPA Professional Standards

Click on Advanced Search

Search keywords above in "all of these words"

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 2019 AICPA Newly Released Simulations—Auditing

FINAL AUD Simulation 501445 Task (2179)

Unit & Sim # to be Assigned To: A4_Sim 3

Sim Task Name: PPE Additions (AICPA R-2019)
Skill Level: Evaluation
Representative Task: AIII-C4.2

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FINAL AUD Simulation 501445 Options List

FINAL AUD Simulation 501445 Exhibits

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FINAL AUD Simulation 501445 Blueprint Information

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FINAL AUD Simulation 501445 Solution

A B C D E

Audit
Adjustment
Asset Proposed Audit Effect on Net
1 ID Item Audit Finding, If Any Adjustment, If Any Income
No audit findings No audit adjustment
2 1562 Computers—laptops identified. necessary. $0

PPE addition was Adjust depreciation to

recorded with an reflect correct date
3 1563 Computers—servers incorrect in-service date. placed in service. $2,500

Reclassify addition to
PPE addition was correct PPE asset class
recorded with an and adjust
4 1564 Walkway excavation incorrect asset class. depreciation. ($1,740)
No audit findings No audit adjustment
5 1567 Conference table identified. necessary. $0

Record expense for

Cost was incorrectly costs inappropriately
6 1570 Injection molding machine capitalized to PPE. capitalized. ($4,800)

Info From PPE

Asset ID No. 1562 Testwork Explanation
Date 03/30/Year 5 Date of 03/30/Year 5 agrees to e-mail response from AP clerk.
Computers classification appears appropriate based on the e-mail response from
Asset class Computers the AP clerk and description on the invoice (invoice 12563).
Acquisition cost $25,200 Amount of $25,200 agrees to invoice 12563.
Per PPE policy exhibit, assets are depreciated on the first month after being placed
into service and computers have a three-year life (or 36 months). This means the
asset would be depreciated from 04/01/Year 5.

Calculation: $25,200 ÷ 36 months x 9 months (April–December) = $6,300

Depreciation $6,300 Depreciation amount on PPE testwork agrees to above recalculation.

Info From PPE

Asset ID No. 1563 Testwork Explanation

E-mail response from AP clerk states these were placed in service on 04/20/Year 5
vs. PPE Testwork shows an in-service date of 03/30/Year 5.
Date 03/30/Year 5 This PPE addition was recorded with an incorrect in-service date.

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Computers classification appears appropriate based on the e-mail response from

Asset class Computers the AP clerk and description on the invoice (invoice 12563).
Acquisition cost $90,000 Amount of $90,000 agrees to invoice 12563.

Per PPE policy exhibit, assets are depreciated on the first month after placed in
service and computers have a three-year life (or 36 months). This means the asset
would be depreciated from 05/01Year 5.

Calculation: $90,000 ÷ 36 months x 8 months (May–December) = $20,000

An adjustment to depreciation to reflect the correct date placed in service

should be proposed. The depreciation expense is currently recorded at $22,500
when it should be recorded at a lower depreciation expense amount of $20,000, a
Depreciation $22,500 difference of $2,500. This will result in an increase in net income of $2,500.

Info From PPE

Asset ID No. 1564 Testwork Explanation

There is a difference in the in-service date of 06/30/Year 5 from the AP clerk e-

mail vs. 06/25/Year 5 on the PPE worksheet. However, this difference is not
relevant, as the client's policy is to depreciate the assets on the first day of the
month after the item is placed into service. Either date results in a starting
Date 06/25/Year 5 depreciation date of 07/01/Year 5.
Per AP clerk e-mail and review of invoice 222, this appears to be a land
improvement rather than a building improvement (as currently recorded on the
Building PPE testwork). Therefore, the PPE addition was recorded with an incorrect asset
Asset class improvements class.
Acquisition cost $46,800 Amount of $46,800 agrees to invoice 222

Per PPE policy exhibit, assets are depreciated on the first of the month after
placed in service and land improvements have a 10-year life (or 120 months). This
means the asset would be depreciated from 07/01/Year 5.

Calculation: $46,800 ÷ 120 months x 6 months (July–December) = $2,340

An adjustment to reclassify addition to correct PPE asset class and adjust

depreciation should be proposed. The depreciation expense is currently recorded
at $600 when it should be recorded at a higher depreciation expense amount of
$2,340, a difference of $1,740. This will result in a decrease in net income of
Depreciation $600 $1,740.

Info From PPE

Asset ID No. 1567 Testwork Explanation
Date 07/15/Year 5 Date of 07/15/Year 5 agrees to e-mail response from AP clerk.
Furniture and Furniture and fixtures classification appears appropriate based on the e-mail
Asset class fixtures response from the AP clerk and description on the invoice (invoice 9630).
Acquisition cost $9,700 Amount of $9,700 agrees to invoice 9630

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Per PPE policy exhibit, assets are depreciated on the first month after placed in
service, and furniture and fixtures have a seven-year life (or 84 months). This
means the asset would be depreciated from 08/01/Year 5.

Calculation: $9,700 / 84 months x 5 months (August–December) = $577.38

(rounded to whole number of $577)

Depreciation $577 Depreciation amount on PPE testwork agrees to above recalculation.

Info From PPE

Asset ID No. 1570 Testwork Explanation
Date 12/29/Year 5 Agrees to e-mail response from AP clerk.

Based on the e-mail response from the AP clerk and invoice 2968, this amount
Machinery and relates to repairs and maintenance, which means it should be expensed in the
Asset class equipment year incurred. This cost was incorrectly capitalized to PPE.

The $4,800 should be recorded as an expense on the income statement and

removed from the PPE balance. The auditor should propose that the client record
the repairs and maintenance expense for costs inappropriately capitalized. This
Acquisition cost $4,800 increase in expense of $4,800 will result in a decrease in income of $4,800.
Depreciation $0 No amount was depreciated, so no adjustment needed.

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 2019 AICPA Newly Released Simulations—Auditing

FINAL AUD Simulation 505163 Task (2185)

Unit & Sim # to be Assigned To: A4_Sim 1

Sim Task Name: Inventory Reconciliation (AICPA R-2019)
Skill Level: Application
Representative Task: AII-E3.1

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FINAL AUD Simulation 505163 Options List

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FINAL AUD Simulation 505163 Exhibits

FINAL AUD Simulation 505163 Blueprint Information

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FINAL AUD Simulation 505163 Solution

Row 2: Agree to the client's perpetual inventory system report as of December 31, Year 1.
To validate the amount of $1,555,550 shown as the balance per perpetual inventory system on the inventory
reconciliation, the auditor should agree this amount to the perpetual inventory system report as of December 31, Year 1.

Row 3: Inspect vendor's bill of lading for proper shipping date and terms.

Inventory purchased from a vendor that is shipped FOB shipping point should be recorded by the client when the item is
shipped from the vendor. The auditor should inspect the vendor's bill of lading for proper shipping date and terms to
validate that this item should be included in inventory as of December 31, Year 1.

Note: A bill of lading is a document either issued by a carrier or created by the vendor. It is a contract for carrying the
goods and often includes a description of what is shipped, date shipped, shipping terms, the weight, and number of boxes
shipped. It serves as a receipt for cargo accepted for transportation by the carrier and is often presented when the items
have shipped to their destination.

Row 4: Inspect vendor's return authorization document to determine if item is properly excluded from inventory.

The client's explanation was that the inventory was approved for return to vendor on December 15, Year 1, but not
shipped until January 6, Year 2. The inventory reconciliation excludes (subtracts) the amount of the return. The auditor
should inspect the vendor's return authorization document to determine if this item is properly excluded from inventory.

Row 5: Inspect the scrap inventory log and supporting documentation to verify the amount and the date the
disposal was recorded.

The client's explanation is that scrap was identified and included in the inventory count. The inventory reconciliation
excludes (subtracts) the scrap inventory. To support the removal of scrap from inventory, the auditor should inspect the
scrap inventory log and supporting documentation to verify the scrap amount of $9,999 and verify the date the disposal
was recorded.

Row 6: Review the plant manager's approval and corresponding journal entry recording the adjustment to the
general ledger.

The client's explanation states that obsolete inventory was included in the physical count. The reconciliation excludes
(subtracts) the obsolete inventory. The client explained that the journal entry recording the adjustment of the obsolete
inventory was made to the general ledger. To corroborate the client's explanation, the auditor should verify that the plant
manager approved the inventory as obsolete and verify that the adjustment was recorded at year-end in the general
ledger.

Row 7: Review vendor invoice and recalculate adjustment. Agree corresponding journal entry to the general
ledger.

The client's explanation states that there was a clerical error in entering the cost of inventory and that the adjusting journal
entry was posted to the general ledger. To corroborate the client's explanation, the auditor should review the vendor
invoice to verify the correct amount that should be recorded and recalculate the difference between the recorded amount
and the cost per the vendor invoice. The auditor should then agree that the entry was recorded correctly in the general
ledger.

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