Solutions for the Biltrite Bicycles Inc. Case

Module I - Assessment of Inherent Risk..............................................................3 Module II – PRELIMINARY ASSESSMENT OF CONTROL RISK BASED ON AN UNDERSTANDING OF THE DESIGN OF CONTROLS ................17 Module III - Control Testing: Sales Processing................................................29 Module IV - PPS Sampling: Factory Equipment Additions............................31 Module V - Accounts Receivable Aging Analysis..............................................35 Module VI - Sales and Purchases Cutoff Tests..................................................42 Module VII - Search for Unrecorded Liabilities...............................................47 Module
McAfee Treasurer

L. Schroeder Dir. Of HR

E. Ransbottom Plant G. Florence Manager Dir. J. Mesarvey Of Purchasing Dir. Chief Internal Audit Accountant

Product Manager

M. Rust Dir. CBIS

Personnel Officers

O. Pema Sales J. N. Karling Hollins Factory MIS Manager Cost Accounting Smith H. FinancialStaff Foreman Transaction State-ments Processing General Ledger

Staff Auditors

H. Cannon Manager IT

Statistical Analysis Accounts Receivable Data Processing Accounts Payable Systems Payroll Analysis & Programming

Data Entry

Budget Coordination Report Genera-tion

Control

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SOLUTIONS FOR THE BILTRITE CASES

BR-5

2. No solutions are necessary for this requirement. 3. No solutions are necessary for this requirement. Answers are contained in relation to requirement #4 below. 4. The following areas are cause for concern: a. Inventory turnover has decreased substantially in 2009 relative to 2008 (See WP A.4), suggesting that (1) inventory quantities may be overstated or simply in excess of needed amounts; or (2) inventory costs have been inflated. Inventory costs have apparently not been inflated because, according to WP A.2, unit costs are substantially below 2008 unit costs. Inventory quantities have indeed increased substantially (See WP A.4) and the auditors must question whether these quantities have been inflated or