C A S E

Mark S. Beasley · Frank A. Buckless · Steven M. Glover · Douglas F. Prawitt

L EA R N ING OB JE C T IVE S
After completing and discussing this case you should be able to
[1] Understand the objectives of substantive audit [3] Identify and assess factors important when
procedures relating to the audit of cash balances evaluating the sufficiency and appropriateness of
[2] Consider the effectiveness and reliability of audit different types of audit evidence
procedures [4] Understand the layout and content of the
standardized bank confirmation form.

INTRODUCTION
Wally’s Billboard & Sign Supply, Inc. was founded four years ago by Walter Johnson. The company
specializes in providing locations for sign and billboard advertising and has recently begun to
enter the sign design market. After working several years in the marketing department of a large
corporation, Wally decided that there was a need in his area for a company specializing in signs and
billboards. Drawing on his marketing experiences, he started his own company.
The company is now preparing to expand its business and has enlisted the help of your
firm, Taylor & Jones, LLP. Over the past two years your firm has provided auditing and assurance
services to prepare the company to seek badly needed outside funding. Along with Bill Thompson,
a senior auditor, you have been assigned to help with the annual audit.
Your assignment is to conduct substantive testing of the company’s cash balances. Bill has
already conducted tests of controls for each of the company’s transaction cycles and has assessed
control risk as relatively low in those cycles. He has also inquired of management regarding any
restrictions imposed by external parties on the use of cash. Management assured him there are no
such restrictions, but you plan to corroborate this response using bank confirmations.
Wally’s Billboard & Sign Supply currently has three separate bank accounts. The first is a
general account used mostly for business expenses and receipts. When payments are collected they
are deposited, along with any cash sale receipts, in the general account. The second account is a
payroll account. Funds are transferred twice a month to this account from the general account to
cover payroll. The third account is an interest bearing account that the company uses to maintain
extra cash for future needs. For this assignment, you will not be required to test intrabank transfers.

The case was prepared by Mark S. Beasley, Ph.D. and Frank A. Buckless, Ph.D. of North Carolina State University and Steven M. Glover, Ph.D. and
Douglas F. Prawitt, Ph.D. of Brigham Young University, as a basis for class discussion. Wally’s is a fictitious company. All characters and names
represented are fictitious; any similarity to existing companies or persons is purely coincidental.

© 249
 R EQ U I R ED
Complete the audit program found on working paper C 2, recording all your work on the audit
program and marking the provided documents (using auditing tick marks such as the ones used on
the cash lead sheet—working paper C 1) to serve as your working papers. Document the results
of your work on the Audit Summary sheet (working paper C 3), noting any errors, concerns,
adjustments, and/or recommendations. If you make adjustments to the ending account balances,
enter the adjustments on the cash lead sheet. Note, you may also download electronic versions of
the working papers from www.pearsonhighered.com/beasley.
After completing the audit program, answer the following questions:
[1] Why is the audit of cash an important part of the audit?
[2] Bill performed tests of controls for all transaction cycles with good results. Why is it important
to also perform substantive audit procedures for the ending cash balance even when tests of
controls over transactions that affect the cash account indicate that those controls are operating
effectively?
[3] According to AICPA auditing standards, what are the necessary ingredients for audit evidence
to be considered “appropriate”?
[4] For each procedure listed in the audit program (schedule C 2), indicate the primary assertion(s)
targeted by the procedure.
[5] For each error, concern, or adjustment you listed on the Audit Summary (schedule C 3), briefly
describe at least one additional test you could perform to gain evidence as to whether or not the
cash account is materially misstated.
[6] The AICPA and the American Banker’s Association developed a standardized bank confirmation
form—see working paper C 6. What is the purpose for confirming information in item number
two on the bank confirmation form? Identify the accounts and related audit assertion(s) to
which the information in item number two is relevant.
[7] What audit procedures might you perform if you were to decide that the risk of fraud involving
the cash account was relatively high for this client?
[8] Perform an online search for "electronic bank confirmations." Summarize in one page or less
what you learn about recent developments in the use of web-based bank confirmations. Include
a brief discussion of the advantages of electronic confirmations in your write-up.

250 © 2015 Pearson Education, Inc.

 1/16/2015

For the Year Ended December 31, 2014

2014
2014 2013

© 2015 Pearson Education, Inc. 251

 1/16/2015

For the Year Ended December 31, 2014

1/12/2015

1/12/2015

252 © 2015 Pearson Education, Inc.

 1/16/2015

For the Year Ended December 31, 2014

© 2015 Pearson Education, Inc. 253

 1/16/2015

254 © 2015 Pearson Education, Inc.

 1/16/2015

© 2015 Pearson Education, Inc. 255

 Reference: C-6
Prepared by:
Date: 1/16/2015
Reviewed by:
STANDARD FORM TO CONFIRM ACCOUNT
BALANCE INFORMATION WITH FINANCIAL INSTITUTIONS

Wally’s Billboard & Sign Supply

ORIGINAL
To be mailed to accountant
CUSTOMER NAME

We have provided to our accountants the following information as of

the close of the business on December 31 , 20 14, regarding our
deposit and loan balances. Please confirm the accuracy of the
Financial [ ] information, noting any exceptions to the information provided. If the
Institution’s Woodland National Bank balances have been left blank, please complete this form by furnishing
the balance in the appropriate space below.* Although we do not
Name and 530 Stadium Ave request nor expect you to conduct a comprehensive, detailed search
Address Provo, UT 84604 of your records, if during the process of completing this confirmation
additional information about other deposit and loan accounts we may
have with you comes to your attention, please include such
[ ] information below. Please use the enclosed envelope to return the
form directly to our accountants.

1. At the close of business on the date listed above, our records indicated the following deposit balance(s):

ACCOUNT NAME ACCOUNT NO. INTEREST RATE BALANCE*

Wally’s Billboard & Sign Supply 0504-02 N/A $100,515

2. We were directly liable to the financial institution for loans at the close of business on the date listed above as follows:

ACCOUNT NO./ DATE THROUGH WHICH

DESCRIPTION BALANCE* DATE DUE INTEREST RATE INTEREST IS PAID DESCRIPTION OF COLLATERAL

Wally Johnson 1 / 2 / 2015

(Customer’s Authorized Signature) (Date)

The information presented above by the customer is in agreement with our records. Although we have not conducted a comprehensive,
detailed search of our records, no other deposit or loan accounts have come to our attention except as noted below.

Cindy Lunt 01/ 10/ 2015

(Financial Institution Authorized Signature) (Date)
Clerk
(Title)

EXCEPTIONS AND OR COMMENTS

Please return this form directly to our accountants: [ ]

Taylor & Jones LLP
Certified Public Accountants
717 East Bay Drive
* Ordinarily, balances are intentionally left blank if they are not Aurora, CO 73442
available at the time the form is prepared. [ ]

Approved 1990 by American Bankers Association, American Institute of Certified Public Accountants, Bank Administration D451 5951
Institute. Additional forms available from: AICPA – Order Department, P.O. Box 1003, NY, NY 10108-1003

256 © 2015 Pearson Education, Inc.

 1/16/2015

Statement Date: 1/01/2015 - 1/10/2015 Cutoff Statement

© 2015 Pearson Education, Inc. 257

 1/16/2015

2014

2014

258 © 2015 Pearson Education, Inc.

 Reference: C-9
Prepared by:
Date: 1/16/2015
Reviewed by:
STANDARD FORM TO CONFIRM ACCOUNT
BALANCE INFORMATION WITH FINANCIAL INSTITUTIONS

Wally’s Billboard & Sign Supply

ORIGINAL
To be mailed to accountant
CUSTOMER NAME

We have provided to our accountants the following information as of

the close of the business on December 31 , 20 14, regarding our
deposit and loan balances. Please confirm the accuracy of the
Financial [ ] information, noting any exceptions to the information provided. If the
Institution’s Sunnydale Banking Co. balances have been left blank, please complete this form by furnishing
the balance in the appropriate space below.* Although we do not
Name and 267 West Irvine St. request nor expect you to conduct a comprehensive, detailed search
Address
Aurora, CO 73454 of your records, if during the process of completing this confirmation
additional information about other deposit and loan accounts we may
have with you comes to your attention, please include such
[ ] information below. Please use the enclosed envelope to return the
form directly to our accountants.

1. At the close of business on the date listed above, our records indicated the following deposit balance(s):

ACCOUNT NAME ACCOUNT NO. INTEREST RATE BALANCE*

Wally’s Billboard & Sign Supply

6315-789 N/A $3,625
Payroll Account

2. We were directly liable to the financial institution for loans at the close of business on the date listed above as follows:

ACCOUNT NO./ DATE THROUGH WHICH

DESCRIPTION BALANCE* DATE DUE INTEREST RATE INTEREST IS PAID DESCRIPTION OF COLLATERAL

Wally Johnson 1 / 2 / 2015

(Customer’s Authorized Signature) (Date)

The information presented above by the customer is in agreement with our records. Although we have not conducted a comprehensive,
detailed search of our records, no other deposit or loan accounts have come to our attention except as noted below.

Tim Merkley 01/ 11/ 2015

(Financial Institution Authorized Signature) (Date)

Clerk
(Title)

EXCEPTIONS AND OR COMMENTS

Please return this form directly to our accountants: [ ]

Taylor & Jones LLP
Certified Public Accountants
* Ordinarily, balances are intentionally left blank if they are not
717 East Bay Drive
available at the time the form is prepared. Aurora, CO 73442
[ ]
Approved 1990 by American Bankers Association, American Institute of Certified Public Accountants, Bank Administration D451 5951
Institute. Additional forms available from: AICPA – Order Department, P.O. Box 1003, NY, NY 10108-1003

© 2015 Pearson Education, Inc. 259

 1/16/2015

Statement Date: 1/01/2015 - 1/10/2015 Cutoff Statement

260 © 2015 Pearson Education, Inc.

 1/16/2015
2015

2014

2014

© 2015 Pearson Education, Inc. 261

 1/16/2015

JAN-16-2015 01:15 PM Brigham Nat'Bank FAX NO. 3037586842 P.01/01

January 16, 2015

262 © 2015 Pearson Education, Inc.

 1/16/2015

2014

2014

© 2015 Pearson Education, Inc. 263

 1/16/2015

2014

2014

2014.

264 © 2015 Pearson Education, Inc.