Description
Project:Milestone One: Financial Statements and AnalysisMilestone Two: Sample Audit ProgramMilestone Three: Tax MemoFinal Submission: Professional Portfolio and Self-Assessment
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ACC 700 Milestone Two Test of Control Results
Newham, Inc.
Test of Controls Results – Revenue
December 31, 2015
Of the 213 sales transactions examined, 82 “deviations” were identified:
No credit approval was found on 42 sample items
The wrong quantity billed was identified on five sample items
There was a mathematical error on 10 sample items
No shipping document could be located for 25 sample items
Following are the procedures used:
1. We randomly chose the sample of 216 transactions across the year with 18 from each calendar month.
2. All of the invoices in the sample were found. None were missing.
3. All of the invoices were properly posted to the general ledger sales and accounts receivable control accounts, and each was posted to the right customer’s
individual account.
Newham, Inc.
Trial Balances for years ending December 31, 2013, 2014 and 2015
Account Description
Cash on Hand
Regular Checking Account
Payroll Account
Accounts Receivable
Allowance for Doubtful Accounts
Inventory
Prepaid Insurance
Office Supplies
Land
Buildings and Land Improvements
Office Equipment and Furniture
Accum. Depreciation
Other Noncurrent Assets
Accounts Payable
Wages Payable
Accrued Liabilities
Line of Credit
Common Stock
Paid-in Capital
Retained Earnings
Sales
Sales Returns
Warranty Expense
Cost of Goods Sold
Freight
Advertising Expense
Auto Expenses
Depreciation Expense
Warehouse Salaries
Legal and Professional Expense
Bad Debt Expense
Insurance Expense
Maintenance Expense
Utilities
Phone
Postal
Miscellaneous Office Expense
Payroll Tax Exp
Retirement Plan Ex
Rent or Lease Expense
Administrative Wages Expense
2013
$
2,400 $
747,000
1,025
513,000
(78,525)
1,531,507
9,143
259
846,250
759,882
841,521
(423,800)
250
(791,397)
(36,838)
(1,648)
(25,000)
(1,531,250)
(1,278,750)
(796,136)
(1,984,641)
12,979
3,753
856,326
8,689
12,425
6,218
26,250
91,730
6,417
8,032
6,428
5,420
9,554
5,467
642
1,279
97,151
75,000
54,357
394,024
2014
$ Change
2,548 $
553,960
860
697,092
(87,691)
1,585,734
8,305
565
846,250
771,882
580,589
(351,643)
250
(488,867)
(54,513)
(1,452)
(23,250)
(1,531,250)
(1,278,750)
(1,087,041)
(1,620,560)
32,347
7,104
640,300
9,095
15,125
5,763
72,157
94,802
5,113
7,569
5,085
6,220
7,855
8,911
740
3,879
87,840
60,000
51,363
344,399
148
(193,040)
(165)
184,092
(9,166)
54,227
(838)
306
12,000
(260,933)
72,157
302,530
(17,675)
196
1,750
(290,905)
364,081
19,368
3,351
(216,026)
406
2,700
(455)
45,907
3,072
(1,304)
(463)
(1,343)
800
(1,699)
3,444
98
2,600
(9,311)
(15,000)
(2,994)
(49,625)
%Change
6%
-26%
-16%
36%
12%
4%
-9%
119%
0%
2%
-31%
-17%
0%
-38%
48%
-12%
-7%
0%
0%
37%
-18%
149%
89%
-25%
5%
22%
-7%
175%
3%
-20%
-6%
-21%
15%
-18%
63%
15%
203%
-10%
-20%
-6%
-13%
Interest Expense
Income Tax Expense – Federal
Income Tax Expense – State
2,000
6,250
3,345
1,860
4,240
3,200
(140)
(2,010)
(145)
-7%
-32%
-4%
d 2015
2015
$
2,599 $
643,802
945
942,528
(42,552)
1,599,078
7,722
982
846,250
771,882
595,169
(355,433)
250
(450,648)
(8,145)
(1,546)
(35,690)
(1,531,250)
(1,278,750)
(1,232,634)
(2,064,809)
23,096
4,481
791,035
5,068
17,507
4,713
33,791
96,792
3,406
3,800
5,774
7,629
5,600
5,651
360
25,390
86,672
63,000
53,705
336,566
$ Change
51
89,842
85
245,436
45,139
13,344
(583)
417
14,580
(3,791)
38,219
46,368
(94)
(12,440)
(145,593)
(444,249)
(9,251)
(2,623)
150,735
(4,027)
2,382
(1,050)
(38,366)
1,990
(1,707)
(3,769)
689
1,409
(2,255)
(3,260)
(380)
21,511
(1,169)
3,000
2,342
(7,833)
%Change
2%
16%
10%
35%
-51%
1%
-7%
74%
0%
0%
3%
1%
0%
-8%
-85%
6%
54%
0%
0%
13%
27%
-29%
-37%
24%
-44%
16%
-18%
-53%
2%
-33%
-50%
14%
23%
-29%
-37%
-51%
555%
-1%
5%
5%
-2%
1,860
9,540
2,800
5,300
(400)
0%
125%
-13%
ACC 700 Milestone Two Test of Control Results
Newham, Inc.
Test of Controls Results – Revenue
December 31, 2015
Of the 213 sales transactions examined, 82 “deviations” were identified:
No credit approval was found on 42 sample items
The wrong quantity billed was identified on five sample items
There was a mathematical error on 10 sample items
No shipping document could be located for 25 sample items
Following are the procedures used:
1. We randomly chose the sample of 216 transactions across the year with 18 from each calendar month.
2. All of the invoices in the sample were found. None were missing.
3. All of the invoices were properly posted to the general ledger sales and accounts receivable control accounts, and each was posted to the right customer’s
individual account.
ACC 700 Milestone Three Guidelines and Rubric
The third milestone is a rough draft of the third artifact for your professional portfolio, a tax memo. The tax memo is broken up into two parts: Tax Memo I is a
personal income tax preparation and Tax Memo II is a corporate tax memo. This will be graded using the rubric at the end of this document and is an opportunity
for you to organize your thoughts and receive feedback from your instructor for the final submission. Note that the submission guidelines for this milestone are
less demanding than those for the final submission. Once you have submitted this milestone and received feedback from your instructor, it is up to you to
incorporate this feedback and complete the artifact by meeting the submission requirements found in the Final Project Guidelines and Rubric document.
Client Three – Ms. Emma Shire (Tax Memo)
Ms. Emma Shire is a client at S.N.H.U., LLC. Your task is to develop a comprehensive, professional tax memo and appendix for her by analyzing business and
individual tax situations. Ms. Shire has questions and concerns about her personal income taxes, as well as taxes as they relate to her role in a partnership with
Marlene Anderson. She also works at Clifford Co., a large organization set up as a corporation, and has questions about their tax preparation. You will work with
Ms. Emma Shire to provide her with guidance on her questions related to personal, partnership, and corporate tax situations. You will need to apply income tax
regulations in solving problems and recommending courses of action that will comply with regulations and, at the same time, result in the best economic solution
for Ms. Emma Shire.
Artifact Three: Tax Memo I Information for Personal Income Tax Preparation
Ms. Shire has provided you with the following information to prepare her personal income tax return for 2014.
Emma Shire lives at 5258 Mountain Skies Road, College Park, MD 20742. She is a human resource manager at Clifford Company, 896 Western Avenue, College
Park, MD 20742 (employer identification number XX-1111111). She is also a 50/50 partner in a local clothing boutique. Ms. Shire is divorced and has two small
children, Kelly Shire (DOB 2/3/2012) and Jordan Shire (DOB 5/19/2006).
Ms. Shire was born on January 14, 1976, and her Social Security number is 123-45-6789. She does not want to contribute $3 to the Presidential Election
Campaign Fund.
The following information is shown on Ms. Shire’s 2014 Wage and Tax Statement (Form W–2):
Line
1
2
3
4
5
6
15
16
17
Description
Wages, tips, other compensation
Federal income tax withheld
Social Security wages
Social Security tax withheld
Medicare wages and tips
Medicare tax withheld
State: Maryland
State wages, tips, etc.
State income tax withheld
Amount
$65,000.00
10,500.00
65,000.00
4,030.00
65,000.00
942.50
65,000.00
1,650.00
Additional Information:
Received interest of $1,750 from Maryland Federal Savings and Loan Association and $250 from Maryland State Bank. Each financial institution reported
the interest income on a Form 1099–INT
Received qualified dividends of $600 from Blue Corporation, $750 from Green Corporation, and $368 from Orange Corporation. Each corporation
reported dividend payments on a Form 1099–DIV.
Received child support of $15,000 during the year.
Received a $900 income tax refund from the state of Maryland on April 29, 2014.
Reported total itemized deductions of $10,200 on 2013 federal income tax return, which included $2,200 of state income tax withheld by her employer.
Received K-1 indicating her share of the clothing boutique’s ordinary business income (loss) – Line 1 is $23,580. No guaranteed payments were made or
dividends were received by the partnership.
Acquired 100 shares of Ace Corporation common stock for $30 a share on January 12, 2014. She sold the stock on December 19 for $55 a share.
Paid $1,300 for prescription medicines and $1,875 in physician and hospital bills. Medical insurance premiums were paid by her employer.
Paid real property taxes of $1,675 on her personal residence and interest on her home mortgage was $4,285, and interest paid to credit card companies
totaled $360.
Contributed $25 each week to her church and $15 each week to United Way.
Paid $1,500 in estimated federal income taxes throughout the year.
Artifact Three: Tax Memo II Corporation Issue
Clifford Company has encountered the following issue:
The company would like to make a property distribution (dividend) of the three machines that it uses in its business. It no longer needs two of these machines.
All three machines have a fair market value of $20,000 each. The basis of each machine is as follows: Machine A, $27,000; Machine B, $20,000; and Machine C,
$12,000. The corporation has asked you for advice. What do you recommend?
Your final portfolio artifact is the comprehensive, professional tax memo and appendix that you develop for Ms. Emma Shire, another client at S.N.H.U., LLC. As
you did with the previous two artifacts, make sure to incorporate the feedback that you receive from your instructor and peers.
Memo: You will justify recommendations and explain potential issues and future decisions relating to Ms. Shire’s tax situations. Given that Ms. Shire is not well
versed in accounting, make sure that your memo addresses her concerns in language that she can understand.
Address Ms. Shire’s questions pertaining to personal tax planning. Based on her given information, what actions can Ms. Shire take throughout the year
to effectively reduce her tax liability? Provide specific recommendations, defend them with tax regulations, and explain the tax consequences or savings
in conceptual and dollar value terms.
Address Ms. Shire’s questions pertaining to her partnership income. Based on the given information, what actions can Ms. Shire take throughout the
year to effectively reduce her tax liability from the partnership? What are the tax consequences to Ms. Shire if she and her partner choose to change
their business to a corporation? Provide specific recommendations, defend them with tax regulations, and explain the tax consequences or savings in
conceptual and dollar value terms.
Address Ms. Shire’s questions pertaining to Clifford Co.’s tax preparation. Provide specific recommendations, defend them with tax regulations, and
explain the tax consequences or savings in conceptual and dollar value terms.
Supporting documents should include, but are not limited to: a completed tax return, tax schedules, and tax forms.
Guidelines for Submission: Tax Memo I should be submitted as a one- to two-paragraph summary in a Microsoft Word document with double spacing, 12-point
Times New Roman font, one-inch margins, and at least two sources cited in APA format. Round all answers up to the nearest dollar value in any calculations.
Tax Memo II should be submitted as a one- to two-paragraph summary in a Microsoft Word document with double spacing, 12-point Times New Roman font,
one-inch margins, and at least two sources cited in APA format.
Note that this milestone is a rough draft and the submission guidelines are different for the final draft of the memos. Tax Memo I will be two to three pages in
length and Tax Memo II will be one to two pages in length with at least three sources. Refer to the submission guidelines in the Final Project Guidelines and
Rubric document.
Critical Elements
Personal Tax
Planning
Partnership Income
Clifford Co.’s Tax
Preparation
Articulation of
Response
Proficient (100%)
Identifies specific actions to reduce Ms. Shire’s tax liability;
provides recommendations supported with tax regulations
with an explanation of the consequences or savings in
conceptual terms and dollar values
Identifies actions for Ms. Shire to reduce her tax liability
from her partnership, includes tax consequences if Ms. Shire
and her partner change to a corporation, and provides
recommendations supported with tax regulations with an
explanation of the consequences or savings in conceptual
terms and dollar values
Provides recommendations pertaining to Clifford Co.’s tax
preparation supported with tax regulations and an
explanation of the consequences or savings in conceptual
terms and dollar values
Submission has no major errors related to citations,
grammar, spelling, syntax, or organization
Not Proficient (0%)
Does not identify specific actions to reduce Ms. Shire’s tax
liability; does not provide recommendations supported with
tax regulations or an explanation of the consequences or
savings in conceptual terms and dollar values
Does not identify actions for Ms. Shire to reduce her tax
liability from her partnership, include tax consequences if
Ms. Shire and her partner change to a corporation, provide
recommendations supported with tax regulations, or provide
an explanation of the consequences or savings in conceptual
terms and dollar values
Does not provide recommendations pertaining to Clifford
Co.’s tax preparation supported with tax regulations or an
explanation of the consequences or savings in conceptual
terms and dollar values
Submission has critical errors related to citations, grammar,
spelling, syntax, or organization that prevent understanding
of ideas
Earned Total
Value
30
30
30
10
100%
ACC 700 Milestone Two Guidelines and Rubric
The second milestone is a rough draft of the second artifact for your professional portfolio, a sample audit. The sample audit will consist of three main parts: the
business risk analysis, the sample audit program, and the report of recommendations. This will be graded using the rubric at the end of this document and is an
opportunity for you to organize your thoughts and receive feedback from your instructor for the final submission. Note that the submission guidelines for this
milestone are less demanding than those for the final submission. Once you have submitted this milestone and received feedback from your instructor, it is up to
you to incorporate this feedback and complete the artifact by meeting the submission requirements found in the Final Project Guidelines and Rubric document.
Newham Company Information
Newham Company is a publicly traded company operating in the “personal product” industry. Newham manufactures cosmetic and body-care products. These
products are sold to large department chain stores, such as Target and Walmart, to be sold and distributed to the final consumer. Competitors include Revlon,
Inc. (REV – NYSE) and Avon Products, Inc. (AVP – NYSE).
Newham Company has experienced steady growth over the past several years. Recently, there has been a change in executive management, including the CEO
and CFO. The change was sparked by questionable bonus payments that were paid to the executive management team based on the company’s performance. In
addition, a recent lawsuit has been filed based on claims that a new product was not properly advertised, leading many customers to experience allergic
reactions.
Sales and Accounts Receivable
A sample of weekly sales invoices shall be analyzed from the sales report by product category. All sales are on account. Sales are classified into four product
categories: cosmetics, skin care, fragrance, and personal care. Charges to customer accounts should be dated with the date of shipment.
Sales invoices are prepared in batches on a daily basis using numbered sales invoices. Sales invoice numbers are automatically generated by the company’s
computer system. The accounts receivable clerk does not have appropriate computer rights to override the computer-generated invoice number. Upon
preparing sales invoices, the accounts receivable clerk verifies that the first invoice number of the batch is consistent with the last invoice number of the
previous batch. Inconsistencies or skipped sales invoice numbers are investigated and resolved before new sales invoices are prepared. The items shipped are
compared to the items billed for proper quantity, price, and other sales order terms.
The accounting department supervisor compares and reconciles a copy of the daily sales invoice batch report to the daily accounts posting report indicating the
individual accounts. The daily account posting report is prepared and sent by the accounts receivable department. Discrepancies are investigated and resolved
to help assure that the customer subsidiary accounts are posted for the same total amount posted to the control account.
At the end of each month, the total of the trial balance of customer account balances (prepared by the accounts receivable department) are reconciled to the
general ledger control account by the accounting department supervisor.
Sales invoice batches are dated with the date of shipment, and totals of each batches are accumulated each month and recorded in the accounts receivable
control and sales revenue accounts. The accounting department supervisor approves all monthly summary entries before posting to the general ledger.
The controller approves all cash refunds and allowance credit memos for sales returns, after initiation by customer service.
Cash Management
The monthly bank statements are mailed to the controller’s office. Duplicate deposit slips are retained and used when bank deposits are made, the cash receipts
journal listing, and the cash disbursements listing to reconcile the general bank accounts. The payroll bank account is also reconciled, utilizing the payroll register
retained by the controller’s office.
The assistant controller oversees all cash management and activity, including the performance of the bank account reconciliation for each bank account held by
the company. The assistant controller compares the cash receipts journal and daily deposit records with the bank deposits and duplicate deposit slips during the
bank account reconciliation.
Internal auditors will randomly review the bank account reconciliations.
Cash Receipts and Accounts Receivable Processing
All cash receipts from customers related to sales are credited to accounts receivable individual and control accounts. Cash receipts are received by mail and
opened by the office secretary. The office secretary prepares the cash receipt listing and daily deposit. A copy of the cash receipt listing and duplicate deposit
slip is sent to the controller’s office. Another copy of the cash receipt listing and the remittance advice are sent to the accounts receivable clerk for posting.
The accounts receivable department posts credits to individual customer accounts, dating the entries with the date of the remittance advice and cash receipt
listing received.
Statements of accounts receivable balances are mailed to customers each month by the accounts receivable accounting department. Customers’ reports of
disputes or differences shall be handled by customer service.
Cash Disbursements
All disbursements are made by check, signed by the controller.
Artifact Two: Sample Audit Program
Your second portfolio artifact will be the professional audit program based on PCAOB audit standards that you create for Newham, an influential client at
S.N.H.U, LLC. Make sure to incorporate the feedback you receive from your instructor while developing this audit program. The following sections should be
included:
Business Risk Analysis: Identifying risk in an organization and the environment in which it operates is the first step in approaching a potential audit and
designing an effective audit program. To analyze business risk, you must:
o
o
o
o
Gain an understanding of Newham
Investigate the industry in which Newham operates
Analyze and assess the risk, including fraud, involved in the company and industry
Identify the relevant PCAOB audit standards and address their relevance to the Newham audit risk assessment
Sample Audit Program: An audit program involves compiling a list (program) of procedures for the auditors to perform in order to obtain evidence and
reasonable assurance that internal controls are operating properly and thus producing accurate financial statements. To compile a sample audit
program, you have been provided with tests of control in revenue and inventory.
You must identify the relevant PCAOB audit standards and address their relevance to the Newham audit program. Include other elements as applicable to
Newham.
Report of Recommendations: Based on an auditor’s experiences and knowledge of accounting, finance, and common errors or pitfalls, it is common for
an auditor to provide recommendations. The sample audit program addressed here is merely a small sample, not a comprehensive program. Thus,
recommendations for further risk analysis, sample methods, and other concerns should be offered. In your report of recommendations to the head of
the new audit team, include the following sections:
o
o
o
o
Explanation of findings in the risk analysis
Sarbanes–Oxley concerns or requirements
Recommendations on appropriate sampling methods
Recommendations for preparation and success in the external audit
Guidelines for Submission: Your paper must be submitted as a two- to three-page Microsoft Word document with double spacing, 12-point Times New Roman
font, one-inch margins, and at least three sources cited in APA format. Round all answers up to the nearest dollar value in any calculations.
Note that this milestone is a rough draft and the submission guidelines are different for the final project. The final paper will be four to five pages in length with
at least seven sources. Refer to the submission guidelines in the Final Project Guidelines and Rubric document.
Critical Elements
Business Risk
Analysis
Sample Audit
Program
Report of
Recommendations
Articulation of
Response
Proficient (100%)
Identifies risk in the organization and the environment in which it
operates; clearly shows an understanding of Newham and the
industry; assesses risk and identifies any relevant PCAOB audit
standards
Identifies the relevant PCAOB audit standards and addresses their
relevance to the Newham audit program
Provides recommendations as to explanation of findings,
Sarbanes–Oxley concerns, appropriate sampling methods, and the
external audit
Submission has no major errors related to citations, grammar,
spelling, syntax, or organization
Not Proficient (0%)
Does not identify risk in the organization or the environment in
which it operates; does not show an understanding of Newham or
the industry; does not assess risk or identify any relevant PCAOB
audit standards
Does not identify the relevant PCAOB audit standards or address
their relevance to the Newham audit program
Does not provide recommendations as to explanation of findings,
Sarbanes–Oxley concerns, appropriate sampling methods, and the
external audit
Submission has critical errors related to citations, grammar,
spelling, syntax, or organization that prevent understanding of
ideas
Earned Total
Value
30
30
30
10
100%
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