PNC Flashcards
AR Concentrations
Create pivot table to capture the top 10 vendors for our AR concentration => use AR aging summary
AR Billing test/shipping test
(what is owed from customers in current/cutoff month): Also calculates the lag between invoice date and shipping date;
Using the top 10 vendors (AR aging), pick at least 25 invoice samples from the raw data (GL AR account/AR detail); shows aging is verified and shipped after invoice date;
a) Pre bill => shipped after invoice (since inventory didn’t go out, may not collect the AR)
b) Waybill Number is usually tracking number; if invoice doesn’t match sample => check currency (British pounds);
c) Purpose of “confirmed status” is to confirm “ship date source”
d) BOL or Carrier / Notes: Tracking#, Waybill#; if shipper letter of instruction use “tracking stickers”
e) Shipping Terms: FOB, FCA
f) Invoice Status: determined from remittance (look for invoice in total payment)
g) If partial payment, ask for explanation; if reasonable put “partial pay” in invoice status
h) If cleared via contra => considered “paid”
- AR credit memo test
used to test credit memo lag => compares to original invoice credit memo and dilution
- **Use AR stats as a guide to select samples => use the credit memo figure and concentrate on months that have a “dilution percent” over 5% => select more samples here
a) Use inventory register then pick credit amounts (negative numbers) for each month
b) OR use the GL and look at AR accounts; within AR account select some type of return account
c) Use “return date” if there was an inventory item returned; if contra or intercompany => do not use
d) For comments, remember to add reason of why credit memo was issued => if lag from invoice to credit memo is <7 days it is non-dilutive; if over its dilutive
e) Process - Sell item => RMA: authorization to issue return/credit => Customer returns item and client receives item (return date) => Client issue credit memo
- AR stats
(test a period of months): tests AR turnover; use pivot table on GL to fill out columns in work papers => separate by using pivot table => will help you out with also credit memos samples
Purpose: Add gross billing for the month (minus credit memos to give you net billing) => this is reduced by applied cash (credit AR) => give you ending AR
- AR trends
AR trends (test a period of months): shows the aging of AR for various months; calculates what is dilutive
- AR Cash Test/Cash Application
=> select samples from cash receipts journal; or go into the GL and select from AR credit balances; you can also get it from your AR roll/stats (payments); only select from cutoff month
i) Agree to invoice => request invoice, remittance and check payable to client
ii) Agreed to payor: make sure there is a check from customer
iii) Agreed to prior age: look at prior month aging detail (use v-lookup)
iv) Confirmed removed from aging (most important!!!): make sure that the invoice is removed from current years aging to ensure money is used for correct invoice => correct cash application (use v-lookup)
Follow up if the payment amount is bigger and invoice is smaller (remittance does not tie) => not a big deal so explanation alone is suffice since payment is bigger than actual invoice (also true is deposit amount is bigger than invoice) => have a running list for the client if remittance doesn’t tie to the check
v) When tying out the check to the bank statement to ensure the deposit into the bank, most times it will not tie since they are lumped deposits for the day; (not that important if cash proof test is fine)
Cash deposits test (VERY IMPORTANT)
Purpose: when PNC actually receives the money and is deposited to the designated account; the loan ledger report show when the cash is applied from the bank statement and used towards the loan
a) “Total Adj AR Receipts”: from A/R stats
b) “Total bank/lock-box deposits”: use loan ledger report (should); or use bank statements if you cant [look at only REVOLVER in ACBS report]
1) Bank/Lock Box Receipt: from ending balance of loan ledger report (beginning loan balance)
2) Add Deposits in Transit: Ending balance found in bank statement
3) Less Deposits in Transit: Beginning balance found in bank statement
c) Use the applied cash (net cash => credit AR) from AR stats (make sure you do AR stats first to complete) and compare to PNC bank statement / or ledger reports
d) When there is a variance ask client to reconcile amounts; may be due to non-
AR cash (sold fixed asset, capital infusion)
- Use bank statement if 4-4-5 and company 4-4-5
- Otherwise use loan ledger report => Look at the beginning Loan Balances
AR Unbilled
test last 3 months; Service Company; service already perform but billed in subsequent month; in order to recognize revenue
a) Purpose is to make sure unbilled ultimately becomes AR and falls off the unbilled aging
b) Unbilled should tie to build
c) Look for contracts that agrees to the service, timesheets, and invoices that tie to the unbilled
Spread financial statements
Purpose: To tie balance sheet and income statement to the GL => asset, liability, and owner’s equity workpapers
- Income statement: Year to date
- Balance sheet: Month end
a) Compare exam date interim YTD VS one year interim YTD
b) Also compare Last Year end AUDITED VS Prior year AUDITED => change update workpapers if available
c) Equity Roll Forward
1. Since YE equity balance was audited we use that as our start
2. Add YTD net income/loss
3. Should roll to YTD equity balance => if doesn’t tie, ask client to reconcile
AP Disbursements test
pull the samples from the payment summary (from cash disbursement journal / AP detail) for the past 6 months/or months after last exam (26 samples); pick an equal amount from each month => Use the AP Disbursements Test Template {PICK NEGATIVE TRANSACTIONS}; look for debit AP accounts (AP debit, Cash credit => cash disbursements; use AP aging for population; concentrate your samples on vendors
**Select samples that are vendors; no need to select top 10; pick a mixture of ACH and checks
**You can verify the samples by checking the bank statements
**Combine all dates to one sheet to make easier to select samples
Purpose: Conveys what is owed to VENDORS at current/cutoff; shows the largest invoice being paid; Calculates the turnover => how quick the vendors are getting paid, which shows if there is a cash flow problem; you can also see how quick the check clears => shows if they are holding checks (to make it disappear from their aging, but not actually paying it)
a) if check is paying for multiple invoices, pick out highest invoice and use it for reference + multiple
b) for terms => make sure it is pretty consistent and does not change to COD => that would show they no longer trust their customer; check register amount is per client books (will be your sample)
c) invoice date would be WEIGHTED AVERAGE
d) Check register amount is our sample directly from the GL
**Look at clearing days and observe any outliers; compared to terms => compare to lag
AP Concentration/Delinq
Pick your top 10 customers and also past due from most current aging; sometimes aging is not provided so you would have to manually group the liability report to current, 31-60, 60-90, over 90 buckets; “SCOPE amount” is your population and ignore “purchase population”
a) Book OD (Concentration/Delinquency tab): outstanding check list; this adds back the outstanding checks back into the aging to see how would it look like (conservatism)
b) AP outstanding checks: use outstanding checklist sample template => use bank RECONCILIATION for cutoff month to get your samples => must have detail to pick samples (pick the top 10) => Conc/Deliq tab => Book OD; also analyze the vendor’s that are overdue “$ over limit” and find reason for this (will be part of the write up)
AP Trends
populate fields from aging’s; get GL numbers from trial balance (usually AP Trade Account)
a) AP trade: AP that is reflected in the aging
b) AP accrual: AP that is owed but not in the aging as of end of month; will appear when proper documents are present
* **In the write-up include avg from cutoff and compare from one year prior; include also minimum and maximum for year
AP Stats
(AP turnover): use the AP roll forward to fill out => A/P EOM is the final balance per roll forward; final GL would be used to tie the amount; Vouchering is credit which increases AP; shows vendor purchases and vendor disbursements
from the client, request for the AP roll forward/detail (use pivot table to populate numbers) for the months tested in audit if unable to calculate from GL (AP trade account) => within AP trade account look for purchases, payments, and accruals
EOM Book OD: enter outstanding checks for dates under scope
AP Notes Payable
(net long term debt): look at loan balances reconciliation; look at GL accounts to locate figures; or you can look at their financials
Make sure the Net Term Portion on Asset Writer ties to total noncurrent liabilities on the balance sheet (get current maturities on asset writer from revolving credit facility)
AP
***Also look for accrued expenses in the trial balance that is abnormally high to see potential contra accounts
