- Management assertions to be addressed (audit objectives)
- Internal control
- Test of controls
- Substantive test of transactions
After the audit program has been drafted, identify the type of report that will be produced as a result of the audit of revenue, and develop the audit report.
The American Institute of Certified Public Accountants (AICPA) professional standards provide uniform wording and format for the audit report. The audit report should focus on the revenue cycle and Jim’s Auto Body. Write a 1-page audit report for Jim’s Auto Body that includes all seven parts of a standard audit report, as follows:
- Report title
- Audit report address
- Introductory paragraphs
- Scope paragraph
- Opinion paragraph
- Name of the Certified Public Accountant (CPA) firm
- Audit report date
Jim’s Auto Body (Inc., or LLC)
1122 Sesame Street
New York, NY, 10002
Dated incorporated January 1st, 2010
8701 Electric Avenue
New York, NY, 10002SSN: 123-45-6789
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- Jim Jameson took on Fred as a partner for the LLC. Fred owns 50% of all profits, losses, and capital. You do not have to complete Part 2 K, L, or M on the 1065 Schedule K1 (there is not enough information provided).
- $4,500 salary expense is officer’s compensation for the corporation and guaranteed payment to partners for the LLC.
- $55,000 equipment is 7-year property in its 5th year of service and was placed into service in the middle of the year, thus using the half-year convention. Use the correct table from the IRS—Publication 946: How to Depreciate Property—to determine the tax deductible depreciation. Form 4562 is not required.
- Jim made four quarterly estimated tax payments of $800 each over the course of the year.
- In accordance with IRS instructions: “Corporations with total receipts and total assets at the end of the tax year less than $250,000 are not required to complete Schedules L, M-1, and M-2” (Internal Revenue Service, n.d.). This also applies to the LLC.
- For the 1065 Schedule K1, you will not have enough information to fill out Part 2 K, L, and M.
Jim’s Auto BodyRevenues:Service Revenue
Jim’s Auto Body
As of April 30, 2015
Acct Rec’able 20,000PP In
Equipment 55,000Accu. Dep.
Liabilities and Stockholders’ EquityLiabilities:Accounts Payable
Stockholders’ Equity:Common Stock 150,000Retained Earnings
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity