Information Relevant to 2011 Audit Audit Action Recommended Pressure to meet sales targets GA 3-1 Increase procedures related to existence of sales and valuation of receivables, as well as cutoff Purchase of equipment GA 3-1 Verify through invoices and receiving reports if equipment purchased during the year Verify terms of refinancing for accuracy as well as interest payments. Line of credit refinanced GA 3-1 Did they pay note on Jan. 1, 2012 or refinance further? May need to disclose as subsequent event if refinanced again, or consider impact on going concern if note was not paid as required Declaration of dividends for the previous year GA 3-1Verify that only approved dividends were paid (i.e. no dividend payments made) Salary increase and stipends approved and seconded by non-independent board members GA 3-1Verify the charter by-laws, appears to conflict of interest Commercial time expense increased 10% from previous year GA 3-1Verify through invoices and payments Damages reported GA 3-2 Verify valuation of damages, as well as check for disclosure if economic loss How does this impact going concern? Prices increased to compensate decreased sales GA 3-2 What is the impact on sales since the price increase?
R&D expense eliminated for year GA 3-2 Verify that R&D decreased accordingly Lab modified to house gym GA 3-2 Verify the costs of modification through invoices, as well as verify how it was recorded-expensed or capitalized Scientists reassigned to maintenance GA 3-2 Were the salaries adjusted to reflect the change in job? Postage and telephone expenses reduced during year GA 3-2 Verify that there was a reduction in postage and telephone expense AR write-off for one account ($8,810.13) GA 3-2 Low number of write-off for company of this size, and undue pressure to avoid write-offs Increase testing related to valuation of AR
Loan to Mr. Lancaster’s personal secretary for 1M GA 3-2
Related party transaction, check to see if disclosed as such and appropriately accounted for per GAAP Mr. Lancaster requested check be drawn to him rather than to secretary GA 3-2 Perform fraud related procedures to ensure Mr. Lancaster did not keep funds or is in collusion with secretary 1.2M new computer system authorized GA 3-2 Verify purchase and price authorization amount through invoices Ms. Mandeville offer to consult on purchase and installation GA 3-2 Outside director, likely compromises independence Authorized draw of $44,053,000 to fund computer purchase and other expenses GA 3-2 Amount seems excessive compared to 1.2M authorization for computer system and previous assertion that many expenses for decreased. Verify disclosure of commitment of funds GA-3-b
AOW auditors selection ratified as 2011 auditors GA 3-3 Why new auditors? Inquire as to the change (i.e. disagreement in terms of accounting treatment or ethics) and authorization to communicate with predecessor auditors Declaration to retroactively pay cash dividend payable Mar 1 2012 to SH of record on Dec 31GA 3-3 Verify subsequent event recorded correctly, not included in cut-off for Dec 31 so not a payment Pending class action litigation GA 3-3 What is likelihood company will lose suit and what are the foreseeable monetary obligation?
Board member inquiry to machinery purchased in early 2010 GA 3-3 Verify existence and current valuation of machinery Motion to approve officers’ bonuses moved and seconded GA 3-3 Moved and seconded by non-independent directors Employee benefits program contributions increased by $300,000, up 10% from past years (employee discontent) GA 3-3 Verify increase through supporting documentation. Could status of labor unrest affect going concern assumption? Previous mentioned 1M Superbowl commercial ad currently defunct and will not be aired this year GA 3-3 Inquire as to why not, is there a lack of sufficient cash to fund the commercial?
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