A Final Requirement in

Auditing In CIS
Environment

Larry’s Landscaping & Garden supply

Submitted To:

Ms. Joz Ramos, CPA

Professor

Submitted By:

Pascua, Mara Angelique

Salinel, Felipe III J.
Arujado, Arnel
Catalan, Vhon Herald A.
Delfin, John Jessie
Cobilla, Jay Patrick
Final Requirement – Auditing in CIS Environment

I. UNDERSTANDING THE BUSINESS

In understanding the business, we first determine the company’s background. What

kind of business are they and anything related to the company. The company we are
about to audit is the Larry’s Landscaping & Garden supply. The nature of their business
is a Service provider and also a Merchandiser. They offer landscaping services and
generates their income by charging their clients of its services like; the design services,
equipment rental, job materials and labor. We also learned that the company uses fiscal
year. The business is a sole proprietorship owned by Larry, and also he has only three
(3) employees working for him namely Duncan Fisher, Jenny Miller and Shane Hamby.
With our further understanding in Larry’s business, we knew that the method of business
of this company, records transaction using Accrual method. Also they use cash payments
as a payment method and they use receipt method paid also by either cash or account.
We also learned that the company is a going concern and operating since 2015 up to
present. Larry’s landscaping & Garden supply has an inventories, garden tools such as
irrigation hose, pump, soil, lighting and sprinklers.

Below are the lists of Larry’s Landscaping & Garden Supply Clients and Suppliers.

LARRY’S LANDSCAPING’S LARRY’S LANDSCAPING’S

CLIENTS SUPPLIERS
Laurel Lee State Board of Equalization
Ecker Design Nolan Hardware and Supplies
Jim’s Family Store Great Statewide Bank
Golliday Sporting Goods Townley Insurance Agency
Bob Crenshaw Robert Carr Masonry
Cal Gas and Electric
Conner Garden Supplies
Cal Telephone
Final Requirement – Auditing in CIS Environment

II. RISK ASSESSMENT

The company is using cash basis of accounting instead of accrual basis. The effect of
this is a loss of 12,444.33 which depicts the effects of transactions and claims in the
current period even it will be resulting to cash receipts and payments in a different
period.

Incorrect program leads to erroneous data processing and high-risk internal control. Re-
programming will help the company lessen the risk of recurring errors in report. The
reliability of reports will increase as well as the company’s integrity.

The company’s lack of transaction trails results to a high risk in internal control because
there is a likelihood exposure to fraudsters. Data input should be supported by
documents for audit purposes.

High risk in using a deactivated accounting software, LLGS uses accounting software
that may harm the company’s computer equipment’s, data and data history. Internal
control is at risk because of probable loss of primary company information and may
incur a significant amount of loss due to computer failure. The company should enable
their accounting software and its maintenance.

LLGS’s internal control is exposed to concealment of errors and irregularities due to

lack of segregation of duties. To avoid connivance, monitoring of transactions must be
done by different persons.

Unauthorized persons can access and alter data and programs leaving no evidence
means the company is in high risk which will lead to ease of access to data and
computer. Data security must be implemented to avoid exposure of company’s vital
information.

Vulnerability and loss of company data is at stake since it can be easily changed and
quickly lost. The company should hire a competent developer to make an accounting
software. Maintenance of back up files and offsite storage procedures must be
deployed.

The small company has an insufficient number of employees permits improper division
of responsibilities. The owner must hire additional workers to enhance record keeping
and other activities in the company.

The company should be more competent when it comes to industry development. The
entity should hire a personnel or expertise to deal with the changes in the industry,
especially in terms of technological changes.

Computer programs should be functioning as designed, if not, it would result on

accumulation of huge number of misstatements. Experts in CIS environment should do
program, it should be tested and modified.
Final Requirement – Auditing in CIS Environment

Larry’s Landscaping & Garden Supply

Risk Assessment

Potential Risks Low Moderate High Test of Controls



Cash Basis of Depicts the effects of transactions
Accounting and claims in the current period
even it will be resulting to cash
receipts and payments in a different
period.


Incorrect May lead to recurring erroneous
Programming data processing and irrelevant
information.



Lack of Lack of transaction trail may lead to
Transaction concealment of irregularities.
Trails


Not Activated Probable loss of primary company
Accounting information and may incur a
Software significant amount of loss due to
computer failure.



No Segregation Possibility of connivance may
of Duties occur.



Ease of Access Unauthorized persons can access
and alter data and programs
leaving no evidence means the
company is in high risk which will
lead to ease of access to data and
computer.


Vulnerability of Vulnerability and loss of company
Company’s data is at stake since it can be
Security easily changed and quickly lost.


Insufficient The small company has an
Number of insufficient number of employees
Employees permits improper division of
responsibilities.



Lack of The Company may not be able to
Expertise cope when it comes to industry
development due to lack of lack
expertise.


Incorrect May lead to recurring erroneous
Programming data processing and irrelevant
information.
Final Requirement – Auditing in CIS Environment

III. Test of Controls

1. Cash Basis of Accounting

Risk Assessment: High

Result: The effect of this is a loss of 12,444.33 which depicts the effects of
transactions and claims in the current period even it will be resulting to cash
receipts and payments in a different period.

2. Incorrect Programming
Risk Assessment: High
Result: May lead to recurring erroneous data processing and irrelevant
information.
Final Requirement – Auditing in CIS Environment

3. Lack of Transaction Trail

Risk Assessment: High

Result: Lack of transaction trail may lead to concealment of irregularities.

4. Not Activated Accounting Software

Risk Assessment: High

Result: Probable loss of primary company information and may incur a

significant amount of loss due to computer failure.
Final Requirement – Auditing in CIS Environment

5. No Segregation of Duties
Risk Assessment: High

Result: Possibility of connivance may occur.

6. Ease of Access
Risk Assessment: High

Result: Unauthorized persons can access and alter data and programs leaving
no evidence means the company is in high risk which will lead to ease of access
to data and computer.
Final Requirement – Auditing in CIS Environment

7. Vulnerability of Company’s Security

Risk Assessment: High

Result: Vulnerability and loss of company data is at stake since it can be easily
changed and quickly lost.

8. Insufficient Number of Employees

Risk Assessment: High

Result: The small company has an insufficient number of employees permits

improper division of responsibilities.

9. Lack of Expertise
Risk Assessment: High
Result: The Company may not be able to cope when it comes to industry
development due to lack of lack expertise.

10. Incorrect Programming same as Test of Control number 2.

 Final Requirement – Auditing in CIS Environment

IV. Analytical Procedures

LARRY`S LANDSCAPING & GARDEN SUPPLY

Comparative Profit and Loss Account
with Horizontal Analysis Profit and Loss
for the Years Ended October 2017- September 2018 and October 2018- September 2019

Year ended Year ended Increase Percentage

Oct '18 - Sep 19 Oct '17 - Sep 18 (Decrease) Change
Ordinary Income/Expense
Total Income 38,047.28 960.00 37,087.28 3,863.26%
Total COGS (4,556.73) (0.00) 4,556.73 100.0%
Gross Profit 33,490.55 960.00 32,530.55 3,388.6%
Expense
Payroll Expenses 107,422.50 0.00 107,422.50 100.0%
Advertising 0.00 240.00 -240.00 -100.0%
Automobile 1,256.49 99.00 1,157.49 1,169.18%
Bank Service Charges 306.00 0.00 306.00 100.0%
Delivery Fee 160.00 0.00 160.00 100.0%
Depreciation 575.00 575.00 0.00 0.0%
Insurance 500.00 0.00 500.00 100.0%
Interest Expense 1,234.62 137.50 1,097.12 797.91%
Job Expenses 1,837.90 0.00 1,837.90 100.0%
Mileage
Reimbursement 0.00 0.00 0.00 0.0%
Miscellaneous 847.00 0.00 847.00 100.0%
Office Supplies 295.87 0.00 295.87 100.0%
Repairs 75.00 175.00 -100.00 -57.14%
Utilities 2,746.89 126.26 2,620.63 2,075.58%
Total Expense (117,257.27) (1,352.76) 115,904.51 8,568.0%
Net Ordinary Income -83,766.72 -392.76 -83,373.96 -21,227.71%
Other Income
Interest Income 6.58 0.00 6.58 100.0%
Total Other Income 6.58 0.00 6.58 100.0%
NET INCOME -83,760.14 -392.76 -83,367.38 -21,226.04%
 Final Requirement – Auditing in CIS Environment

LARRY`S LANDSCAPING & GARDENING SUPPLY

Comparative Statement of Financial Position
Horizontal Analysis
September 30, 2018 and 2019

Increase (Decrease)
Sep 30, 19 Sep 30, 18 Amount Percentage
ASSETS
Current Assets
Checking/Savings
Checking 108,030.44 199,550.40 -91,519.96 -45.86%
Cash Expenditures 225.23 0.00 225.23 100.0%
Savings 20,510.00 20,500.00 10.00 0.05%
Total Checking/Savings 128,765.67 220,050.40 -91,284.73 -41.48%
Accounts Receivable 4,306.94 960.00 3,346.94 348.64%
Other Current Assets
Prepaid Insurance 700.00 0.00 700.00 100.0%
Inventory Asset 6,613.17 3,379.70 3,233.47 95.67%
Undeposited Funds -1,859.70 0.00 -1,859.70 -100.0%
Total Other Current Assets 5,453.47 3,379.70 2,073.77 61.36%
Total Current Assets 138,526.08 224,390.10 -85,864.02 -38.27%
Fixed Assets
Truck 12,025.00 12,600.00 -575.00 -4.56%
Total Fixed Assets 12,025.00 12,600.00 -575.00 -4.56%
TOTAL ASSETS 150,551.08 236,990.10 -86,439.02 -36.47%
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable 1,056.32 3,189.12 -2,132.80 -66.88%
Credit Cards 1,355.49 99.00 1,256.49 1,269.18%
Other Current Liabilities
Payroll Liabilities 4,172.74 0.00 4,172.74 100.0%
Payments on Account -1,520.00 0.00 -1,520.00 -100.0%
Sales Tax Payable 1,207.46 6.16 1,201.30 19,501.62%
Total Other Current Liabilities 3,860.20 6.16 3,854.04 62,565.58%
Total Current Liabilities 6,272.01 3,294.28 2,977.73 90.39%
Long Term Liabilities
Bank of Anycity Loan 20,801.07 0.00 20,801.07 100.0%
 Final Requirement – Auditing in CIS Environment

Equipment Loan 4,343.11 0.00 4,343.11 100.0%

Bank Loan 7,283.56 14,438.38 -7,154.82 -49.55%
Total Long Term Liabilities 32,427.74 14,438.38 17,989.36 124.59%
Total Liabilities 38,699.75 17,732.66 20,967.09 118.24%
Equity
Opening Bal Equity 151,970.07 219,570.70 -67,600.63 -30.79%
Retained Earnings 43,641.40 79.50 43,561.90 54,794.84%
Net Income -83,760.14 -392.76 -83,367.38 -21,226.04%
Total Equity 111,851.33 219,257.44 -107,406.11 -48.99%
TOTAL LIABILITIES & EQUITY 150,551.08 236,990.10 -86,439.02 -36.47%
Final Requirement – Auditing in CIS Environment

LARRY`S LANDSCAPING & GARDEN SUPPLY

Comparative Profit and Loss Account
with Vertical Analysis Profit and Loss
for the Years Ended October 2017- September 2018 and October 2018- September 2019

OCT 2018 – SEPT19 OCT2018 –

SEPT19

Total Revenue 38,047.28 100% 960.00 1.00

Total COGS 4,556.73 11.98% 0.00 0%
Gross Profit 33,490.55 88.02% 960.00 100%
Expense
Payroll Expenses 107,422.50 282.34% 0.00 0%
Advertising 0.00 0.00% 240.00 25%
Automobile 1,256.49 3.30% 99.00 10%
Bank Service
Charges 306.00 0.80% 0.00 0%
Delivery Fee 160.00 0.42% 0.00 0%
Depreciation 575.00 1.51% 575.00 60%
Insurance 500.00 1.31% 0.00 0%
Interest Expense 1,234.62 3.24% 137.50 14%
Job Expenses 1,837.90 4.83% 0.00 0%
Mileage
Reimbursement 0.00 0.00% 0.00 0%
Miscellaneous 847.00 2.23% 0.00 0%
Office Supplies 295.87 0.78% 0.00 0%
Repairs 75.00 0.20% 175.00 18%
Utilities 2,746.89 7.22% 126.26 13%
Total Expense 117,257.27 308.19% 1,352.76 141%
Net Ordinary Income -83,766.72 -220.16% -392.76 -41%
Other Income/Expense
Other Income
Interest Income 6.58 0.02% 0.00 0%
Total Other Income 6.58 0.02% 0.00 0%
Net Other Income 6.58 0.02% 0.00 0%
NET INCOME -83,760.14 -220.15% -392.76 -41%
Final Requirement – Auditing in CIS Environment

LARRY`S LANDSCAPING & GARDENING SUPPLY

Comparative Statement of Financial Position
Horizontal Analysis
September 30, 2018 and 2019

SEPTEMBER 30, 2019 SEPTEMBER 30, 2018

ASSETS
Current Assets
Checking/Savings
Checking 108,030.44 71.76% 199,550.40 84.20%
Cash Expenditures 225.23 0.15% 0.00 0.00%
Savings 20,510.00 13.62% 20,500.00 8.65%
Total Checking/Savings 128,765.67 85.53% 220,050.40 92.85%
Accounts Receivable 4,306.94 2.86% 960.00 0.41%
Other Current Assets
Prepaid Insurance 700.00 0.46% 0.00 0.00%
Inventory Asset 6,613.17 4.39% 3,379.70 1.43%
Undeposited Funds -1,859.70 -1.24% 0.00 0.00%
Total Other Current Assets 5,453.47 3.62% 3,379.70 1.43%
Total Current Assets 138,526.08 92.01% 224,390.10 94.68%
Fixed Assets
Truck 12,025.00 7.99% 12,600.00 5.32%
Total Fixed Assets 12,025.00 7.99% 12,600.00 5.32%
TOTAL ASSETS 150,551.08 100.00% 236,990.10 100.00%
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable 1,056.32 0.70% 3,189.12 1.35%
Credit Cards 1,355.49 0.90% 99.00 0.04%
Other Current Liabilities
Payroll Liabilities 4,172.74 2.77% 0.00 0.00%
Payments on Account -1,520.00 -1.01% 0.00 0.00%
Sales Tax Payable 1,207.46 0.80% 6.16 0.00%
Total Other Current
Liabilities 3,860.20 2.56% 6.16 0.00%
Total Current Liabilities 6,272.01 4.17% 3,294.28 1.39%
Long Term Liabilities
Bank of Anycity Loan 20,801.07 13.82% 0.00 0.00%
Final Requirement – Auditing in CIS Environment

Equipment Loan 4,343.11 2.88% 0.00 0.00%

Bank Loan 7,283.56 4.84% 14,438.38 6.09%
Total Long Term Liabilities 32,427.74 21.54% 14,438.38 6.09%
Total Liabilities 38,699.75 25.71% 17,732.66 7.48%
Equity
Opening Bal Equity 151,970.07 100.94% 219,570.70 92.65%
Retained Earnings 43,641.40 28.99% 79.50 0.03%
Net Income -83,760.14 -55.64% -392.76 -0.17%
Total Equity 111,851.33 74.29% 219,257.44 92.52%
TOTAL LIABILITIES & EQUITY 150,551.08 100.00% 236,990.10 100.00%
Final Requirement – Auditing in CIS Environment

V. TEST OF DETAILS

Account Revenue Cycle (Sales Accounts Receivable and Others)

Client Larry’s Landscaping & Garden Supply
Audit for the year September 30, 2019
ending

Account balance

Assertions/ Conducted test of details Comments

Possible material
misstatements
Completeness Tracing from sales invoice to Selected sales invoices were found to be
income statement. completely recorded in the income
statement.

Accuracy/ Test the clerical accuracy of
Valuation and Allocation
sales invoice (10) in
comparison with the item list
prices by the management.
Recalculating the sales tax
and discount s
Prices of product and services for the 10
invoices were found accurately based on
the Management’s list of selling prices
Out of the 10 invoices, 1 invoice was
found to have a discrepancy in using
discount terms.

Existence Vouching the sales invoices

were limited to information
from the system and could
not conduct any further
verifying other physical
related documents.
Final Requirement – Auditing in CIS Environment

Account Conversion Cycle (Purchases, Inventory and Accounts Payable)

Client Larry’s Landscaping & Garden Supply
Audit for the year September 30, 2019
ending

Account balance

Assertions/ Conducted test of details Comments

Possible material
misstatements
Completeness Tracing from purchase Selected billing from vendors (10) were
invoice to entries made in found to be completely and correctly
journals and amounts recorded in the income statement.
reflecting in the income
statement.

Accuracy Recalculating the sales tax No discrepancy was found and was
and discount s accurately stated.

Existence Vouching the sales invoices

were limited to information
from the system and could
not conduct any further
verifying other physical
related documents.
Final Requirement – Auditing in CIS Environment
Accounts Expense- Salaries Expense
Client Larry’s Landscaping & Garden Supply
Audit for the year September 30, 2019
ending
Account balance
Assertions/ Conducted test of details
Possible material
misstatements
Existence/ Occurrence Limited verification to review
of employees information and
journal
Completeness Review the transaction
journal as against employees’
payroll information
Accuracy Recomputed the gross pay
and deductions
Cut off Review of the accounting
period
Classification Review of the system
generated pay check details
Comments
Salaries and wages expense does not
have include in the payroll cost of non-
existent personnel
Salaries and wages cost with respect of
all personnel have been fully accounted
Found that salaries and wages were
calculated accurately.
Salaries and wages cost were properly
recognized during the period and accrued
expenses have been accounted for
correctly in the financial statement
Salaries and wages cost were fairly
allocated for as an operating expense
incurred in production activity
Final Requirement – Auditing in CIS Environment

Accounts Assets- Inventory

Client Larry’s Landscaping & Garden Supply
Audit for the year September 30, 2019
ending

Account balance

Assertions/ Conducted test of details Comments

Possible material
misstatements
Existence Comparison of Sales orders The sales orders were found to tallied
(10) physical inventory count with what is recorded in the physical
and inventory reflected in the inventory count and in statement of
statement of financial position financial position

Accuracy Examine sales orders and Quantity, discounts and amounts were
amounts recorded in the correctly stated in the journals in
journal Financial Position

Sales tax were correctly computed and

Recalculating of the available reflected in the financial position
sales tax and discounts
Final Requirement – Auditing in CIS Environment

Accounts Assets- Prepaid Insurance

Client Larry’s Landscaping & Garden Supply
Audit for the year September 30, 2019
ending

Account balance

Assertions/ Conducted test of details Comments

Possible material
misstatements
Valuation and allocation Review of journal entries Balances of Prepaid expense were
made properly realized on a monthly basis in
the ordinary course of business

Accounts Asset- Truck

Client Larry’s Landscaping & Garden Supply
Audit for the year September 30, 2019
ending

Account balance

Assertions/ Conducted test of details Comments

Possible material
misstatements
Accuracy Review of accuracy of Depreciation expense amount was found
depreciation to be consistent with the previous period
Final Requirement – Auditing in CIS Environment

Summary and Recommendation:

The main findings of the audit show that, overall controls were reliable and
accounts were managed in accordance with the principles of due diligence. There were
passwords and user name that limits the access of unauthorized personnel. Recovery
back up plan was also present in the system for cases like fortuitous events. Management
assertions made were reasonably stated few discrepancies were found. Results of the
audit reveal that the credit and collection policies were to be satisfactory, no past dues
have been recognized. No voided checks were found during the period. However, certain
processes could benefit from further review in order to improve their efficiency, fairness
and consistency. Example computer generated forms such as purchase and sales order,
invoices should display the preparer.