Instructor’s Solutions Manual
#gv #gv
for Assurance Module
#gv #gv #gv
Comprehensive Assurance #gv
& Systems Tool: An
#gv #gv #gv #gv
Integrated Practice
#gv #gv
Set #gv
Fourth Edition#gv
Laura R. Ingraham #gv #gv
J. Gregory Jenkins
#gv #gv
New #gvYork, #gvNY
,This #gvwork #gvis #gvprotected #gvby #gvUnited #gvStates #gvcopyright #gvlaws #gvand #gvis
#gvprovided #gvsolely #gvfor #gvthe #gvuse #gvof #gvinstructors #gvin #gvteaching #gvtheir
#gvcourses #gvand #gvassessing #gvstudent #gvlearning. #gvDissemination #gvor #gvsale
#gvof #gvany #gvpart #gvof #gvthis #gvwork #gv(including #gvon #gvthe #gvWorld #gvWide #gvWeb)
#gvwill #gvdestroy #gvthe #gvintegrity #gvof #gvthe #gvwork #gvand #gvis #gvnot #gvpermitted.
#gvThe #gvwork #gvand #gvmaterials #gvfrom #gvit #gvshould #gvnever #gvbe #gvmade
#gvavailable #gvto #gvstudents #gvexcept #gvby #gvinstructors #gvusing #gvthe
#gvaccompanying #gvtext #gvin #gvtheir #gvclasses. #gvAll #gvrecipients #gvof #gvthis #gvwork
#gvare #gvexpected #gvto #gvabide #gvby #gvthese #gvrestrictions #gvand #gvto #gvhonor #gvthe
#gvintended #gvpedagogical #gvpurposes #gvand #gvthe #gvneeds #gvof #gvother
#gvinstructors #gvwho #gvrely #gvon #gvthese #gvmaterials.
Director #gvof #gvPortfolio #gvManagement: #gvAdrienne #gvD’Ambrosio
Senior #gvSponsoring #gvEditor: #gvNeeraj
#gvBhalla #gvEditorial #gvAssistant: #gvElisa
#gvMarks # g v Content #gvProducer:
#gvSugandh #gvJuneja
Copyright #gv© #gv2019, #gv2014, #gv2010 #gvby #gvPearson #gvEducation, #gvInc. #gvor #gvits #gvaffiliates. #gvAll
#gvRights #gvReserved. #gvManufactured #gvin #gvthe #gvUnited #gvStates #gvof #gvAmerica. #gvThis #gvpublication
#gvis #gvprotected #gvby #gvcopyright, #gvand #gvpermission #gvshould #gvbe #gvobtained #gvfrom #gvthe #gvpublisher
#gvprior #gvto #gvany #gvprohibited #gvreproduction, #gvstorage #gvin #gva #gvretrieval #gvsystem, #gvor
#gvtransmission #gvin #gvany #gvform #gvor #gvby #gvany #gvmeans, #gvelectronic, #gvmechanical, #gvphotocopying,
#gvrecording, #gvor #gvotherwise. #gvFor #gvinformation #gvregarding #gvpermissions, #gvrequest #gvforms, #gvand
#gvthe #gvappropriate #gvcontacts #gvwithin #gvthe #gvPearson #gvEducation #gvGlobal #gvRights #gvand
#gvPermissions #gvdepartment, #gvplease #gvvisit #gvwww.pearsoned.com/permissions/.
PEARSON #gvand #gvALWAYS #gvLEARNING #gvare #gvexclusive #gvtrademarks #gvowned #gvby #gvPearson
#gvEducation, #gvInc. #gvor #gvits #gvaffiliates #gvin #gvthe #gvU.S. #gvand/or #gvother #gvcountries.
Unless #gvotherwise #gvindicated #gvherein, #gvany #gvthird-party #gvtrademarks, #gvlogos, #gvor #gvicons #gvthat
#gvmay #gvappear #gvin #gvthis #gvwork #gvare #gvthe #gvproperty #gvof #gvtheir #gvrespective #gvowners, #gvand #gvany
#gvreferences #gvto #gvthird-party #gvtrademarks, #gvlogos, #gvicons, #gvor #gvother #gvtrade #gvdress #gvare #gvfor
#gvdemonstrative #gvor #gvdescriptive #gvpurposes #gvonly.
Such #gvreferences #gvare #gvnot #gvintended #gvto #gvimply #gvany #gvsponsorship, #gvendorsement, #gvauthorization, #gvor
promotion #gvof #gvPearson’s #gvproducts #gvby #gvthe #gvowners #gvof #gvsuch #gvmarks, #gvor #gvany #gvrelationship
#gvbetween #gvthe #gvowner #gvand #gvPearson #gvEducation, #gvInc., #gvor #gvits #gvaffiliates, #gvauthors,
#gvlicensees, #gvor #gvdistributors.
, INSTRUCTIONAL NOTES #gv
CLIENT ACCEPTANCE: #gv
The Winery at Chateau Americana
#gv #gv #gv #gv
INSTRUCTIONAL OBJECTIVES #gv
• Understand #gvtypes #gvof #gvinformation #gvused #gvto #gvevaluate #gva #gvprospective #gvaudit #gvclient
• Evaluate #gvbackground #gvinformation #gvabout #gvan #gventity #gvand #gvkey #gvmembers #gvof #gvmanagement
• Brainstorm #gvrelevant #gvfinancial #gvand #gvnon-financial #gvfactors #gvrelated #gvto #gvclient #gvacceptance
• Perform #gvand #gvevaluate #gvpreliminary #gvanalytical #gvprocedures
• Make #gvand #gvjustify #gva #gvclient #gvacceptance #gvdecision
• Describe #gvmatters #gvthat #gvshould #gvbe #gvincluded #gvin #gvan #gvengagement #gvletter
KEY FACTS
#gv
• Chateau #gvAmericana #gv(CA) #gvis #gva #gvfamily-owned #gvwinery #gvthat #gvis #gvcurrently #gvconsidering
#gvwhether #gvto #gvhire #gva # g v new #gvpublic #gvaccounting #gvfirm.
• Current #gvyear #gvsales #gv- #gv$21,945,000; #gvnet #gvincome #gv- #gv$1,997,000; #gvtotal #gvassets #gv- #gv$42,029,000.
• CA #gvoperates #gva #gv125-acre #gvvineyard #gvwhich #gvyields #gvone-fourth #gvof #gvthe #gvwinery’s #gvproduction
#gvneeds. #gvCA #gvis #gva #gvmodest #gvwinery #gvwith #gvannual #gvproduction #gvof #gv385,000 #gvcases #gvof #gvwine.
• The #gvwine #gvindustry #gvis #gva #gvfragmented #gvindustry #gvwith #gvmore #gvthan #gv8,000 #gvwineries #gvin #gvthe #gvUnited
#gvStates.
• Most #gvkey #gvmanagement #gvpositions #gvare #gvheld #gvby #gvmembers #gvof #gvthe #gvSummerfield #gvfamily.
#gvThe #gvexception #gvto #gvthis #gvrule #gvis #gvRob #gvBreeden, #gvthe #gvCFO.
• The #gvwinery #gvimplemented #gva #gvnew #gvaccounting #gvinformation #gvsystem #gvsome #gvfourteen #gvmonths
#gvago. #gvThere #gvhas #gvbeen #gvsome #gvemployee #gvturnover #gvas #gva #gvresult #gvof #gvthe #gvnew #gvsystem.
• Discussions #gvwith #gvthe #gvpredecessor #gvauditor, #gvWilliam #gvLawson, #gvrevealed #gvno #gvsignificant
#gvdisagreements #gvwith #gvmanagement; #gvhowever, #gvMr. #gvLawson #gvindicated #gvthat #gvRob #gvBreeden
#gvwas #gv“more #gvaggressive” #gvthan #gvthe #gvwinery’s #gvformer #gvCFO.
Copyright #gv© #gv2019 #gvPearson
#gvEducation, #gvInc.
Assurance #gv- #gv1
, Ingraham & Jenkins
SUGGESTED SOLUTIONS
The following solutions relate to steps from the audit program that students were asked to complete.
1. Brainstorm about and briefly describe financial and non-financial factors that are relevant to the
decision to accept the potential client.
Student responses to this requirement will vary. The following is a partial list of the factors that are
likely to be relevant to the firm’s decision.
Financial Factors:
a. CA has strong and upwardly trending sales and has been profitable for the last three years and
beyond as evidenced by the retained earnings balance.
b. Although CA’s current ratio is below the industry average, its AR and Inventory turnover
compare favorably.
c. The company’s debt load is lower than the industry average (debt-to-equity ratio for the company
is 0.52 [calculation shown in solution to question 3 below] compared to the industry average of
0.99 in the most recent year). The company’s strong sales and earnings have provided sufficient
cash to cover debt and interest payments and produce a Times Interest Earned measure above the
industry average (9.41 [calculation shown in solution to question 3 below]compared to 6.91 in
the most recent year).
d. CA’s balance sheet appears to be strong with increasing current assets. Much of the increase in
the last year is in the company’s Investments and Production Inventories balances. In addition,
the company has invested more than $2,000,000 in productive assets in the last year.
e. Accounts payable have increased by more than 35% since the prior year and long term debt has
increased slightly.
Non-financial Factors:
a. The company is considering an initial public offering in the near future.
b. The wine industry is a highly fragmented industry that is dominated by a small number of large
companies such as Ernest & Julio Gallo and Constellation Brands.
c. Wine distribution is primarily achieved through supermarket chains and mass merchandisers.
Other distribution outlets offer substantially less growth opportunity.
d. The wine industry appears to have a bright future and the industry, as a whole, has significant
growth opportunities in the US. Wine consumption is highest among adults 35-64 years of age,
the generation that tends to have the greatest amount of disposable income.
e. Significant consolidation has taken place in the wine industry and the trend is likely to continue.
f. CA has entered into exclusive distribution agreements with outlets in several large metropolitan
areas and is seeking similar opportunities in other areas.
g. The Summerfield family owns the winery and members of the family hold most management
positions.
h. Rob Breeden became the winery’s CFO just two years ago after the company’s CFO of more
than 15 years resigned. There are rumors that the resignation was in response to disagreements
between the CFO and the president, Edward Summerfield, regarding the need for a new IS.
i. The vice-president of winery operations, Jacques Dupuis, was accused of theft of trade secrets
form a former employer, but the charges were ultimately dropped due to insufficient evidence.
j. CA implemented a new IS some fourteen months ago. The new system is fully integrated with
modules for purchasing and accounts payable, sales and accounts receivable, production and
inventory, payroll, and the general ledger. Each of these modules provides data that are critical to
Copyright #gv© #gv2019 #gvPearson
#gvEducation, #gvInc.
Assurance #gv- #gv2
#gv #gv
for Assurance Module
#gv #gv #gv
Comprehensive Assurance #gv
& Systems Tool: An
#gv #gv #gv #gv
Integrated Practice
#gv #gv
Set #gv
Fourth Edition#gv
Laura R. Ingraham #gv #gv
J. Gregory Jenkins
#gv #gv
New #gvYork, #gvNY
,This #gvwork #gvis #gvprotected #gvby #gvUnited #gvStates #gvcopyright #gvlaws #gvand #gvis
#gvprovided #gvsolely #gvfor #gvthe #gvuse #gvof #gvinstructors #gvin #gvteaching #gvtheir
#gvcourses #gvand #gvassessing #gvstudent #gvlearning. #gvDissemination #gvor #gvsale
#gvof #gvany #gvpart #gvof #gvthis #gvwork #gv(including #gvon #gvthe #gvWorld #gvWide #gvWeb)
#gvwill #gvdestroy #gvthe #gvintegrity #gvof #gvthe #gvwork #gvand #gvis #gvnot #gvpermitted.
#gvThe #gvwork #gvand #gvmaterials #gvfrom #gvit #gvshould #gvnever #gvbe #gvmade
#gvavailable #gvto #gvstudents #gvexcept #gvby #gvinstructors #gvusing #gvthe
#gvaccompanying #gvtext #gvin #gvtheir #gvclasses. #gvAll #gvrecipients #gvof #gvthis #gvwork
#gvare #gvexpected #gvto #gvabide #gvby #gvthese #gvrestrictions #gvand #gvto #gvhonor #gvthe
#gvintended #gvpedagogical #gvpurposes #gvand #gvthe #gvneeds #gvof #gvother
#gvinstructors #gvwho #gvrely #gvon #gvthese #gvmaterials.
Director #gvof #gvPortfolio #gvManagement: #gvAdrienne #gvD’Ambrosio
Senior #gvSponsoring #gvEditor: #gvNeeraj
#gvBhalla #gvEditorial #gvAssistant: #gvElisa
#gvMarks # g v Content #gvProducer:
#gvSugandh #gvJuneja
Copyright #gv© #gv2019, #gv2014, #gv2010 #gvby #gvPearson #gvEducation, #gvInc. #gvor #gvits #gvaffiliates. #gvAll
#gvRights #gvReserved. #gvManufactured #gvin #gvthe #gvUnited #gvStates #gvof #gvAmerica. #gvThis #gvpublication
#gvis #gvprotected #gvby #gvcopyright, #gvand #gvpermission #gvshould #gvbe #gvobtained #gvfrom #gvthe #gvpublisher
#gvprior #gvto #gvany #gvprohibited #gvreproduction, #gvstorage #gvin #gva #gvretrieval #gvsystem, #gvor
#gvtransmission #gvin #gvany #gvform #gvor #gvby #gvany #gvmeans, #gvelectronic, #gvmechanical, #gvphotocopying,
#gvrecording, #gvor #gvotherwise. #gvFor #gvinformation #gvregarding #gvpermissions, #gvrequest #gvforms, #gvand
#gvthe #gvappropriate #gvcontacts #gvwithin #gvthe #gvPearson #gvEducation #gvGlobal #gvRights #gvand
#gvPermissions #gvdepartment, #gvplease #gvvisit #gvwww.pearsoned.com/permissions/.
PEARSON #gvand #gvALWAYS #gvLEARNING #gvare #gvexclusive #gvtrademarks #gvowned #gvby #gvPearson
#gvEducation, #gvInc. #gvor #gvits #gvaffiliates #gvin #gvthe #gvU.S. #gvand/or #gvother #gvcountries.
Unless #gvotherwise #gvindicated #gvherein, #gvany #gvthird-party #gvtrademarks, #gvlogos, #gvor #gvicons #gvthat
#gvmay #gvappear #gvin #gvthis #gvwork #gvare #gvthe #gvproperty #gvof #gvtheir #gvrespective #gvowners, #gvand #gvany
#gvreferences #gvto #gvthird-party #gvtrademarks, #gvlogos, #gvicons, #gvor #gvother #gvtrade #gvdress #gvare #gvfor
#gvdemonstrative #gvor #gvdescriptive #gvpurposes #gvonly.
Such #gvreferences #gvare #gvnot #gvintended #gvto #gvimply #gvany #gvsponsorship, #gvendorsement, #gvauthorization, #gvor
promotion #gvof #gvPearson’s #gvproducts #gvby #gvthe #gvowners #gvof #gvsuch #gvmarks, #gvor #gvany #gvrelationship
#gvbetween #gvthe #gvowner #gvand #gvPearson #gvEducation, #gvInc., #gvor #gvits #gvaffiliates, #gvauthors,
#gvlicensees, #gvor #gvdistributors.
, INSTRUCTIONAL NOTES #gv
CLIENT ACCEPTANCE: #gv
The Winery at Chateau Americana
#gv #gv #gv #gv
INSTRUCTIONAL OBJECTIVES #gv
• Understand #gvtypes #gvof #gvinformation #gvused #gvto #gvevaluate #gva #gvprospective #gvaudit #gvclient
• Evaluate #gvbackground #gvinformation #gvabout #gvan #gventity #gvand #gvkey #gvmembers #gvof #gvmanagement
• Brainstorm #gvrelevant #gvfinancial #gvand #gvnon-financial #gvfactors #gvrelated #gvto #gvclient #gvacceptance
• Perform #gvand #gvevaluate #gvpreliminary #gvanalytical #gvprocedures
• Make #gvand #gvjustify #gva #gvclient #gvacceptance #gvdecision
• Describe #gvmatters #gvthat #gvshould #gvbe #gvincluded #gvin #gvan #gvengagement #gvletter
KEY FACTS
#gv
• Chateau #gvAmericana #gv(CA) #gvis #gva #gvfamily-owned #gvwinery #gvthat #gvis #gvcurrently #gvconsidering
#gvwhether #gvto #gvhire #gva # g v new #gvpublic #gvaccounting #gvfirm.
• Current #gvyear #gvsales #gv- #gv$21,945,000; #gvnet #gvincome #gv- #gv$1,997,000; #gvtotal #gvassets #gv- #gv$42,029,000.
• CA #gvoperates #gva #gv125-acre #gvvineyard #gvwhich #gvyields #gvone-fourth #gvof #gvthe #gvwinery’s #gvproduction
#gvneeds. #gvCA #gvis #gva #gvmodest #gvwinery #gvwith #gvannual #gvproduction #gvof #gv385,000 #gvcases #gvof #gvwine.
• The #gvwine #gvindustry #gvis #gva #gvfragmented #gvindustry #gvwith #gvmore #gvthan #gv8,000 #gvwineries #gvin #gvthe #gvUnited
#gvStates.
• Most #gvkey #gvmanagement #gvpositions #gvare #gvheld #gvby #gvmembers #gvof #gvthe #gvSummerfield #gvfamily.
#gvThe #gvexception #gvto #gvthis #gvrule #gvis #gvRob #gvBreeden, #gvthe #gvCFO.
• The #gvwinery #gvimplemented #gva #gvnew #gvaccounting #gvinformation #gvsystem #gvsome #gvfourteen #gvmonths
#gvago. #gvThere #gvhas #gvbeen #gvsome #gvemployee #gvturnover #gvas #gva #gvresult #gvof #gvthe #gvnew #gvsystem.
• Discussions #gvwith #gvthe #gvpredecessor #gvauditor, #gvWilliam #gvLawson, #gvrevealed #gvno #gvsignificant
#gvdisagreements #gvwith #gvmanagement; #gvhowever, #gvMr. #gvLawson #gvindicated #gvthat #gvRob #gvBreeden
#gvwas #gv“more #gvaggressive” #gvthan #gvthe #gvwinery’s #gvformer #gvCFO.
Copyright #gv© #gv2019 #gvPearson
#gvEducation, #gvInc.
Assurance #gv- #gv1
, Ingraham & Jenkins
SUGGESTED SOLUTIONS
The following solutions relate to steps from the audit program that students were asked to complete.
1. Brainstorm about and briefly describe financial and non-financial factors that are relevant to the
decision to accept the potential client.
Student responses to this requirement will vary. The following is a partial list of the factors that are
likely to be relevant to the firm’s decision.
Financial Factors:
a. CA has strong and upwardly trending sales and has been profitable for the last three years and
beyond as evidenced by the retained earnings balance.
b. Although CA’s current ratio is below the industry average, its AR and Inventory turnover
compare favorably.
c. The company’s debt load is lower than the industry average (debt-to-equity ratio for the company
is 0.52 [calculation shown in solution to question 3 below] compared to the industry average of
0.99 in the most recent year). The company’s strong sales and earnings have provided sufficient
cash to cover debt and interest payments and produce a Times Interest Earned measure above the
industry average (9.41 [calculation shown in solution to question 3 below]compared to 6.91 in
the most recent year).
d. CA’s balance sheet appears to be strong with increasing current assets. Much of the increase in
the last year is in the company’s Investments and Production Inventories balances. In addition,
the company has invested more than $2,000,000 in productive assets in the last year.
e. Accounts payable have increased by more than 35% since the prior year and long term debt has
increased slightly.
Non-financial Factors:
a. The company is considering an initial public offering in the near future.
b. The wine industry is a highly fragmented industry that is dominated by a small number of large
companies such as Ernest & Julio Gallo and Constellation Brands.
c. Wine distribution is primarily achieved through supermarket chains and mass merchandisers.
Other distribution outlets offer substantially less growth opportunity.
d. The wine industry appears to have a bright future and the industry, as a whole, has significant
growth opportunities in the US. Wine consumption is highest among adults 35-64 years of age,
the generation that tends to have the greatest amount of disposable income.
e. Significant consolidation has taken place in the wine industry and the trend is likely to continue.
f. CA has entered into exclusive distribution agreements with outlets in several large metropolitan
areas and is seeking similar opportunities in other areas.
g. The Summerfield family owns the winery and members of the family hold most management
positions.
h. Rob Breeden became the winery’s CFO just two years ago after the company’s CFO of more
than 15 years resigned. There are rumors that the resignation was in response to disagreements
between the CFO and the president, Edward Summerfield, regarding the need for a new IS.
i. The vice-president of winery operations, Jacques Dupuis, was accused of theft of trade secrets
form a former employer, but the charges were ultimately dropped due to insufficient evidence.
j. CA implemented a new IS some fourteen months ago. The new system is fully integrated with
modules for purchasing and accounts payable, sales and accounts receivable, production and
inventory, payroll, and the general ledger. Each of these modules provides data that are critical to
Copyright #gv© #gv2019 #gvPearson
#gvEducation, #gvInc.
Assurance #gv- #gv2
