Assignment #1
Planning the Integrated Audit
1. Engagement Letter
December 18, 2009
Mr. Kevin Chen, Chair
Audit Committee of the Board of Directors
Peach Blossom Cologne Company
1308 Bee Hive Boulevard
Chicago, Illinois
Dear Mr. Chen:
We are writing this letter to confirm our agreement with respect to our integrated audit of the
financial statements of Peach Blossom Cologne Company and its internal control over financial
reporting for the year ending December 31, 2009. The purpose of the audit will be to provide our
opinion regarding the fairness of presentation of the financial statements in conformity with generally
accepted accounting principles and the effectiveness of internal control over financial reporting in
conformity with the COSO framework.
Our examination will be conducted in accordance with generally accepted auditing standards and
will include examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. The examination will also include an audit of internal control over financial
reporting, including such tests of the design and operation of these controls as we deem necessary to
assess their effectiveness and the impact on the nature, timing, and extent of our audit evidence. In
conjunction with our audit of internal control over financial reporting, we will provide a written
communication to management and the Audit Committee of the Board of Directors describing any
control deficiencies, significant deficiencies, and material weaknesses we encounter. Material
weaknesses will preclude our providing an unqualified opinion on the effectiveness of internal
control. Our audit will also include assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial statement presentation.
We will plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement. The examination will not include a detailed audit of
transactions to the extent required to discover defalcations and/or other irregularities that are not
material to the financial statements, although our examination may uncover such matters.
,As in prior years, we will require assistance from Peach Blossom personnel, including the
preparation of schedules and analyses of accounts. The expected date of completion of the audit is
February 12, 2010. Our fee is based on estimates of time to be expended. It should be recognized that
these estimates could be affected by unusual circumstances.
We appreciate the opportunity to perform the Audit of Peach Blossom Cologne Company. Please do
not hesitate to contact us if you have any questions regarding the engagement. If the terms of this
agreement are satisfactory, please sign in the space provided below and return the duplicate copy of
the letter to us.
Sincerely,
Anderson, Olds, and Watershed
Anderson, Olds, and Watershed
Certified Public Accountants
Accepted by:_________________________________________
Title _________________________________________
Date: _________________________________________
2
, Peach Blossom Cologne Company P-1
2. Time Budget
Time Budget 12/28/09
December 31, 2009 JWP
1 of 2
Prior Current Current Var. Explanation of
Year Year Year from Variance from
Audit Area Actual % Budget % Actual % Budget Budget
Planning 6 2.6% 24 12.0%
Interim:
Understanding internal control 5 2.1% 12 6.0%
Testing control design effectiveness 3 1.3% 8 4.0%
Testing control operting effectiveness 3 1.3% 8 4.0%
Cash 2 0.9% 8 4.0%
Accounts Receivable 2 0.9% 8 4.0%
Inventory 4 1.7% 12 6.0%
3
Fixed assets 2 0.9% 0 0.0%
Accounts Payable 2 0.9% 6 3.0%
Accrued liabilites 2 0.9% 0 0.0%
Federal income taxes 2 0.9% 0 0.0%
Notes Payable 2 0.9% 0 0.0%
Capital Stock 1 0.4% 0 0.0%
Retained Earnings 1 0.4% 0 0.0%
Operating accounts 2 0.9% 0 0.0%
Trial balance and adjusting entries 3 1.3% 1 0.5%
Other (Explain):
Total Interim 36 15.4% 63 31.5%
, Peach Blossom Cologne Company P-1
Time Budget 12/28/09
December 31, 2009 JWP
2 of 2
Prior Current Current Var. Explanation of
Year Year Year from Variance from
Audit Area Actual % Budget % Actual % Budget Budget
Year-end:
Cash 16 6.8% 5 2.5%
Accounts Receivable 18 7.7% 8 4.0%
Inventory 24 10.3% 12 6.0%
Fixed Assets 16 6.8% 8 4.0%
Accounts Payable 22 9.4% 12 6.0%
Accrued Liabilities 8 3.4% 2 1.0%
Federal Income Taxes 8 3.4% 3 1.5%
Notes Payable 7 3.0% 3 1.5%
Capital Stock 1 0.4% 1 0.5%
4
Retained Earnings 2 0.9% 1 0.5%
Operating accounts 14 6.0% 4 2.0%
Commitments & Contingencies 3 1.3% 1 0.5%
Minutes & Correspondence 6 2.6% 3 1.5%
Representations Letter 1 0.4% 1 0.5%
Unrecorded Liabilities 8 3.4% 2 1.0%
Report Preparation 8 3.4% 4 2.0%
Internal Control Letter 1 0.4% 4 2.0%
In-Charge Memorandum 5 2.1% 3 1.5%
Other (Explain):
Total Year-end 168 71.8% 77 38.5%
Total Planning (from page 1) 6 2.6% 24 12.0%
Total Interim (from page 1) 36 15.4% 63 31.5%
Supervision & Review 24 10.3% 36 18.0%
Total Hours 234 100.0% 200 100.0%
Planning the Integrated Audit
1. Engagement Letter
December 18, 2009
Mr. Kevin Chen, Chair
Audit Committee of the Board of Directors
Peach Blossom Cologne Company
1308 Bee Hive Boulevard
Chicago, Illinois
Dear Mr. Chen:
We are writing this letter to confirm our agreement with respect to our integrated audit of the
financial statements of Peach Blossom Cologne Company and its internal control over financial
reporting for the year ending December 31, 2009. The purpose of the audit will be to provide our
opinion regarding the fairness of presentation of the financial statements in conformity with generally
accepted accounting principles and the effectiveness of internal control over financial reporting in
conformity with the COSO framework.
Our examination will be conducted in accordance with generally accepted auditing standards and
will include examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. The examination will also include an audit of internal control over financial
reporting, including such tests of the design and operation of these controls as we deem necessary to
assess their effectiveness and the impact on the nature, timing, and extent of our audit evidence. In
conjunction with our audit of internal control over financial reporting, we will provide a written
communication to management and the Audit Committee of the Board of Directors describing any
control deficiencies, significant deficiencies, and material weaknesses we encounter. Material
weaknesses will preclude our providing an unqualified opinion on the effectiveness of internal
control. Our audit will also include assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial statement presentation.
We will plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement. The examination will not include a detailed audit of
transactions to the extent required to discover defalcations and/or other irregularities that are not
material to the financial statements, although our examination may uncover such matters.
,As in prior years, we will require assistance from Peach Blossom personnel, including the
preparation of schedules and analyses of accounts. The expected date of completion of the audit is
February 12, 2010. Our fee is based on estimates of time to be expended. It should be recognized that
these estimates could be affected by unusual circumstances.
We appreciate the opportunity to perform the Audit of Peach Blossom Cologne Company. Please do
not hesitate to contact us if you have any questions regarding the engagement. If the terms of this
agreement are satisfactory, please sign in the space provided below and return the duplicate copy of
the letter to us.
Sincerely,
Anderson, Olds, and Watershed
Anderson, Olds, and Watershed
Certified Public Accountants
Accepted by:_________________________________________
Title _________________________________________
Date: _________________________________________
2
, Peach Blossom Cologne Company P-1
2. Time Budget
Time Budget 12/28/09
December 31, 2009 JWP
1 of 2
Prior Current Current Var. Explanation of
Year Year Year from Variance from
Audit Area Actual % Budget % Actual % Budget Budget
Planning 6 2.6% 24 12.0%
Interim:
Understanding internal control 5 2.1% 12 6.0%
Testing control design effectiveness 3 1.3% 8 4.0%
Testing control operting effectiveness 3 1.3% 8 4.0%
Cash 2 0.9% 8 4.0%
Accounts Receivable 2 0.9% 8 4.0%
Inventory 4 1.7% 12 6.0%
3
Fixed assets 2 0.9% 0 0.0%
Accounts Payable 2 0.9% 6 3.0%
Accrued liabilites 2 0.9% 0 0.0%
Federal income taxes 2 0.9% 0 0.0%
Notes Payable 2 0.9% 0 0.0%
Capital Stock 1 0.4% 0 0.0%
Retained Earnings 1 0.4% 0 0.0%
Operating accounts 2 0.9% 0 0.0%
Trial balance and adjusting entries 3 1.3% 1 0.5%
Other (Explain):
Total Interim 36 15.4% 63 31.5%
, Peach Blossom Cologne Company P-1
Time Budget 12/28/09
December 31, 2009 JWP
2 of 2
Prior Current Current Var. Explanation of
Year Year Year from Variance from
Audit Area Actual % Budget % Actual % Budget Budget
Year-end:
Cash 16 6.8% 5 2.5%
Accounts Receivable 18 7.7% 8 4.0%
Inventory 24 10.3% 12 6.0%
Fixed Assets 16 6.8% 8 4.0%
Accounts Payable 22 9.4% 12 6.0%
Accrued Liabilities 8 3.4% 2 1.0%
Federal Income Taxes 8 3.4% 3 1.5%
Notes Payable 7 3.0% 3 1.5%
Capital Stock 1 0.4% 1 0.5%
4
Retained Earnings 2 0.9% 1 0.5%
Operating accounts 14 6.0% 4 2.0%
Commitments & Contingencies 3 1.3% 1 0.5%
Minutes & Correspondence 6 2.6% 3 1.5%
Representations Letter 1 0.4% 1 0.5%
Unrecorded Liabilities 8 3.4% 2 1.0%
Report Preparation 8 3.4% 4 2.0%
Internal Control Letter 1 0.4% 4 2.0%
In-Charge Memorandum 5 2.1% 3 1.5%
Other (Explain):
Total Year-end 168 71.8% 77 38.5%
Total Planning (from page 1) 6 2.6% 24 12.0%
Total Interim (from page 1) 36 15.4% 63 31.5%
Supervision & Review 24 10.3% 36 18.0%
Total Hours 234 100.0% 200 100.0%
