Revenue audit category and receivables of a company dedicated to

import and marketing of home appliances and various products

Summary

This is a financial audit a company dedicated to the import and marketing of home appliances and various
products in the city of Guayaquil for the year ended December 31, 2007. For greater understanding has
been divided into four chapters are: Theoretical framework, audit planning, execution of audit tests and
finally the conclusions and recommendations. The theoretical framework bases on which will analyze the
financial activity of the company to provide report their management on the situation that has the same and
determine whether the financial statements have been prepared according to Accounting Principles put
Generally accepted. performed an audit which aims to give an opinion whether the financial statements
present fairly the financial position, results of operations as of December 31, 2007, in accordance with the
NIA, NEC, and GAAP. Through the implementation of recommendations issued testing.

Keywords: financial audit, appliances company, Control, Audit

Abstract

This is a financial audit to an import and export and domestic electrical items Another enterprise Located
in Guayaquil for the 2007 period closed at December 31. For an easy comprehension we Divided in four
parts as Follows: Theoretical Framework, the Audit Planning, Implementation of audit tests and finally
Conclusions and recommendations. Firstly, It provides a concrete theory That Allows a clear understanding
the financial activity in order to deliver to the earns an inform About the situation of the company and so
can determine if the financial inform has-been prepared accords With the regulation of the Generally
Accepted Accounting Principles. In the next part we realize real audit in fact to Obtain an acerca review
the financial statements in order to determine If This statement Represent in a reasonable form the
complete situation of the company, accord with NIA, NEC and GAAP. Through the test we can emit our
Recommendations.
1. Introduction  Knowledge of the business and the industry in
The thesis discusses a financial audit of a company which is included
that is dedicated to buying and selling appliances for  Conclusions on internal control
greater understanding has been divided into four  Review of accounting procedures
chapters are: Theoretical Framework, audit planning,  relative importance of the balance of the total
execution of audit tests and finally conclusions and  Serealizaranentrevista,
recommendations. surveys, direct observations, document analysis
 Design and conduct additional tests of controls
1.1 Theoretical framework  Assess control risk
Analyze the financial activity of the company to  Perform substantive tests
provide its executives informed about the situation 1.4 Essential Concepts as Auditing Reporting
that presents itself and determine whether the Standards
financial statements have been prepared according to
Generally Accepted Accounting Principles. Specifies the general treatment to be applied to
recognition and measurement of certain events affecting
the financial position and results of operations of
1.2 Specific objectives enterprises. These principles provide the basis for
 Ensure proper evaluation and monitoring of accrual accounting and include:
organizational management
 Ensure timely and reliable information and 1.4.1 Determination of results.
records. In determining the financial accounting results, it is the
 Define and implement measures to prevent risks, process of identifying, measuring and related revenues,
detect and correct deviations that occur in the costs and expenses of a company for an accounting
organization and that may affect the achievement period. Revenues from one exercise generally
of its objectives. determined in

1.3 Procedures for data collection:

Losprocedimientosdeauditoría
used will depend inter alia on the following
points:
independently, by applying first embodiment.
Costs and expenses are determined by applying
the principles of recognizing them, based on the
relationship between historical cost and the
corresponding income independently determined.
1.4.2 Income and realization
It is the gross inflow of economic benefits during
the period arising in the course of ordinary
activities of an enterprise when these inputs given
as increases in other assets results that derive from
contributions from owners of heritage.
Entry under this principle derives essentially
three activities: a) selling products; b) provision of
services which give rise to interest income, rents,
royalties, fees, etc .; c) use of other resources. The
income does not include the receipt of purchased
assets, loan disbursements, investments by
shareholders or revenue adjustments from
previous years.
1.5 General Operation concept according
Reporting Standards
1.5.4 Expenses directly associated with
trading income
The costs of assets sold or services rendered are
recognized when the income is recorded
1.5.5 Mediation costs and expenses
The determination of costs and expenses directly
associated with revenue recognized exchanges are
based on the recorded amount of assets leaving the
company or cost of services rendered
General operation principles guide the selection and
mediation of events accounting as well as the
presentation of information through financial
statements
1.5.1 Registration liabilities
Liabilities are recorded when the transactions are
effected incur obligations to transfer assets or provide
services in the future
1.5.2 Passive measurement
Liabilities are measured assigned amounts exchanges
usually amounts to be paid.
Decreased pasivos.- decreases liabilities are
recorded when they are sold off through payments
are replaced by other passive or any other similar
form
1.5.3 Revenue sharing
The principles are recorded when products are sold,
services are rendered or company resources are used
by others. Also revenues are recorded when a
company sells assets other than ordinary course of
business
 Verify and evaluate internal control Equipitos
 Verificarsicadaáreacumpleconlos procedures
 Verify that business processes comply with an
adequate control environment
 Review of operating procedures and control in sales
billing and collection area.
2.3.3 Procedures for data collection:
They losprocedimientosdeauditoríautilizados depend
inter alia on the following points:

2. Audit Planning  Knowledge of the business and the industry in

which is included
2.1. Reason for Audit
Financial Audit Company takes the Equipitos under
Audit Plan.

2.2. Scope of Audit

The audit covered the period from 1 January 2007
until 31 December 2007 and specifically examine the
Accounts Receivable category - Income

2.3 goals

2.3.1 General objectives

The objective of this audit is the company Equipitos
give an opinion whether the financial statements
present fairly the financial position, results of
operations as of December 31, 2007, in accordance
with the NIA, NEC, and GAAP.

2.3.2 Specific objectives

 Determine the reasonableness of the financial
statements of accounts receivables category -
income.
  Conclusions on internal control
 Review of accounting procedures
 relative importance of the balance of the total
 Serealizaranentrevista, surveys, direct
observations, analysis
documents
 Design and conduct additional tests of
controls
 Assess control risk
 Perform substantive tests
2.4 Knowledge of the entity and its
legal basis
The Equipitos company is located in the north of
the city of Guayaquil, it was incorporated on
October 26, 1997 as a public limited company that
sells appliances.
Equipitos has its rationale and justification to offer
the entire population appliances at a good price
and quality.
The company is legally constituted, registered in
the SRI and recognized by the Superintendency of
Companies
LaestructuraorganizativadeestaEmpresa comprises:
 General Manager
 GerentedeVentasDepartamentode Accounting
Assistants
 Department of collections and sales
 Warehouse assistant
2.6.5.1 Economic Situation
The current situation has led our company to be more
strict with credit for the political uncertainty of the
new system of government in 2008. Our sales have
decreased by 30% since October 2007, but are
considering promotions and strategies of marketing.
2.6.7 Tax Obligations
 monthly VAT returns
 monthly statements of withholding tax
 transactional Annex
 Annex dependency ratio
 Annual declaration of income tax.
 Impuestoalapropiedaddevehículos motorized.

2.6.1 Organizational Structure Here we show an analysis of the sales and monthly
costs of the company:
Main Significant Accounting Policies
March The inventory is the main source of income of the
301,843.6 274,785.44 45952.96
9 companysales
months are appliances are
costsvalued by Expenses
the permanent
April 130,017.1 240,437.26 34464.72 method and coasting with the FIFO method.
Januar 424,722.63 206,089. 28720.60
3 08
y
may 2.6.8.4 Revenues
211,596.51 and Costs
450,726.0 226,697.99 40208.84
5
Februa 206,089. 34464.72
June 331,416.2 288,524.71 28720.60
They are recorded based on the issuance of invoices to
2 customers and delivering the goods.
July 419,114.0 171,740.90 45952.96
4 2.6.8.5 main costs
August 281,958.7 274,785.44 45952.96
2 Cost of storage and merchandise
September 656,204.1 206,089.08 51697.08
1

2.6.8.1 Basis of Presentation

The financial statements are prepared and presented in
accordance with generally accepted accounting principles,
the Reporting Standards, Audit Reporting Standards.

2.6.8. 2. Accounts Receivable

The company does not have an old report portfolio in
the balance of each of the customers that make up its
portfolio specified, and do not record a provision to
recognize possible credit losses.
That is why we've been analyzing the balances of the
accounts of each customer. The Company has its
furniture and fixtures, computer equipment, office
equipment, and vehicles, which are depreciated
according to the percentages established by law 10%,
33%, 10%, 20% respectively. The cost is depreciated
according to the straight-line method based on the
useful life.

2.6.8.3 Inventory
2.6.8.6 major Expenses
Salaries, gasoline
2.6.8.7 Business Objective
The main objective of the company is to satisfy
customer needs by delivering our orders on time
2.7 Risk
The risk of fraud on a global level is the
possibility of material errors in them and that
auditors can not detect with the procedures that
apply.
Many of undetected errors are due to fraud
committed by officials or employees.
Because the company no controls the risk of fraud
is very vulnerable.
 Differences between accounting balances and
invoices issued (Risk Violation of controls)
 Get an analysis of accounts receivable balances
and reconcile with the highest
 Confirm receivables with debtors
 Applying analytical procedures to accounts
receivable and income
 subsequent charges
2.8 Preliminary analytical procedures They are
comparisons of the financial statements and the
reasons to forecasts made by auditors from sources
of information such as financial statements of
previous years
 Unbilled sales (risk of fraud)
 physical bills not provided (Risk Vulneración
controls)
 Not provided statements (Risk Violation of
controls)
 bank reconciliations that do not support the
statements of different banks (risk of fraud)
 Expenses are not supported by invoices and
approvals hierarchical level (Risk Violation of
controls) and (risk of fraud)
 Assistant differences between fixed assets and
accounting records (Risk Violation of controls)
 Difference in dates of acquisition of fixed assets.
(Risk Vulneración controls)
 Given that the company has infringed risks risks
to be matched controls tapes boxes with sales
receipts
 Examine a sample of sales transactions
period from January 1 to 31 December 2007,
product of normal business operations.
2.10 Materiality
2.10.1 Definition and Overview
It is the preliminary estimate of the auditor of the
smallest amount of error that probably influence

2.9 comparative financial statements

2.9.1 horizontal analysis method
It is a process of comparing homogeneous financial
statements in two or more consecutive periods. This
analysis des useful for the company, because by this
method if changes are reported in the activities and if
the results are positive or negative; also it allows you
to define which of them requires our greatest
attention.

 documents and accounts to collect: It shows an

increase in 2007 compared to 2006 by 68.45%,
which means that customers are defaulting to the
company and have not been discharged
uncollectible accounts. Also they do not have a
portfolio aging report
 The inventory increase due to the purchase of
appliances apara take stock before the economic
uncertainty of the new laws next year making
effective our certificates of deposit
 Other assetsThe company acquired a fire
prevention system to safeguard our goods and
personnel.
 Bank overdrafts: Shows a representative
increase over the previous year by 88.98%, this
means that not been able to make collections on
time and have resorted to request overdrafts
 Accumulated charges to pay: They are by
financial expenses arising from bank liabilities,
bank overdrafts, credit cards, bank fees, fees for
account management, etc. generated during the
 on the judgment of a reasonable person based on
the financial statements. Other 26,560 26,760 200,00 0.75%
income
HORIZONTAL ANALYSIS ON THE INCOME STATEMENT
-
COMPANY EQUIPITOS
Net profit 1535125 1116241 418,884.0 -27.29%
VARIATIONS 0
2006 2007
absolut relativ
e e The magnitude of an error or omission that may
influence the professional judgment of users of
Net sales 4456987 5098711 641,724.0 14.40% financial statements in making economic decisions.
0
According to the rules there are two levels of
Sales -
materiality:
cost (2,568,9 (3,434,8 865,841 33,70%
77) 18)  Global
.00
 planning
- There are several techniques, however describes the
Gross profit 1888010 1663893 224,117 -11.87% most commonly used:
.00  Applying a factor (1.5 or 2)
Operat  Applying a percentage cut or "haircut" (25%
ing or 50%)
costs
2.10.2 Determination of Materiality
sales 256,400 329370 72970.00 28.46%
The next step is to calculate materiality levels for
Administratio 123045 245042 121,997.0 99.15%
audit in fiscal 2007, which is the year under
n 0 assessment, established by the following method:
1 Obtain the corresponding revenue item.
Utility -
2 Multiply the value of income (1) for 5% because
in 1508565 1089481 419,084 -27.78%
it represents the best option to estimate materiality in
operati .00
cases where the Company has recurring losses in its
on financial statements.
 3 The calculation obtained represents the value of
Bank overdrafts Short-term loans 301673
the overall materiality and is the basis for calculating Notes and accounts payable 2854197
the materiality of planning. Accumulated charges to pay 2207889
4 Set the percentage cut based on the professional Total current liabilities 39362
judgment of the auditor and business risk, and apply Shareholders' equity: 5403121
it to the overall materiality; thus the value of Social capital
planning materiality is obtained. Legal reserve Additional Capital 2,402
Net income Retained earnings 1,255
TABLE 6
Total stockholders' equity 44,583
Box Calculation of Materiality at 90905
1116241
December 31, 2007 1255386
6658507

AñoValor of Income
3. Test Execution Audit
After having completed the above steps the
component
o to
2007be examined will be accounts receivable-Revenue,
1116241 at this stage we will execute the
embodied
n in the previous step to reasonability of said item. verify
e
t 0.05 Aims to audit the accounts receivable and revenue
w
o  Examine the risks, among them fraud
3 55.812.05
 Examine the internal control of accounts
receivable and revenue
4 Cuto 0.25
ut
Materiality is the preliminary estimate of
auditor the smallest amount of error  Confirm the existence of accounts receivable and
probably he would influence the judgment of a the occurrence of revenue transactions
reasonable person it based on financial, the states  Check the integrity of transactions accounts
therefore: receivable and revenue
Global Materiality is US $ 1.116.21  Request details of accounts
Planning Materiality is US $ 55.812.05 make up this category, perform arithmetic
extensions, we compared with balances greater
Once the Planning Materiality should be identified in and identify unusual items.
the comparative financial statements the items that  Order balance confirmations to customers of the
exceed this value companies.
 Uncollectible perform analysis for principal
TABLE 7 balances of this item.
COMPANY BALANCE  Evaluate the policy loan loss provisioning
SHEET EQUIPITOS applied by companies.
 Check after the end of period under review
charges, for proper record of accounts
Assets receivable.
Current assets:  Check presentation and documentation
Cash 38,448
temporary investments 364123 supporting the main items to which no
documents and accounts to collect 2232943 You may have undergone some other
procedure.
inventories 2331161
Total current assets 4966675 Inherent risks
Before carrying out control tests, auditors
Property, vehicles and furniture 1595287
and fixtures They should assess inherent risk category.
Other assets Many
deal.of these risks come from risks
96545

6658507  Law restrictions and regulations.

Liabilities and shareholders'
3.1 Differences between accounting
Current liabilities:
balances and invoices issued 3.2 physical bills not provided
Product of our review, we note that the company In order to confirm that all
billed for sales of products during the period between amount as records
1 January and 31 December 2007 there differences
Customers Invoices Accounting Differences
between the values shown as sales in the accounting
records arising from the system Consistent with the
warehouse expenses and detail of invoices issued
physically. So we have:
 Percent
3.4 Financial statements not provided YEAR
caused that to date of our report
Balance age
we can not provide
Provis
ion in the
In our review we note that the company does not S the accounts of customers that are detailed
Provisi
have an accounting information system that following table cut at Decemberon31, 2007: Amou
nt
allows you to generate statements with previous 1997 PORTFOLIO
18742.00 ANALYSIS
100% 18742.00
cut to the date of issuance thereof. This situation 55779.00 55779.00
1998 100%
1999 75567.00 100% 75567.00
Big Year 25021.00 100% 25021.00
Discounts 422.218 55.106 (367.112) 2000
warehouses
Carmita 10947 445.056 (649.725) 2001 45572.00 100% 45572.00
81 Year 8,654.00 100% 8,654.00
Super 190.836 86.344 (104.492) 2002
Combos
Buy here 31199 2997285 (122.690) Year 8,200.00 100% 8,200.00
75 2003
Mr. Cat 239.732 39.732 (200,000) 2004 94306.00 100% 94306.00
transactions are recorded in the periods in which they Year 239,483.00 75% 179,612.2
were carried out and that the financial statements provide 2005 5
reliable, complete and timely information request last 3 2006
bills of 2006, the first three and the last three in 2007, and First 298,909.00 149,454.5
semester fifty 0
the first three of 2004 %
No bills 260 to 265 and 1101 to No1106 2006
In addition, we have observed that there Total
2,232,943.00
Portfolio
Total

invoices that are not archived and up Provision 660,907.75

the date of preparation of this report (31 October
2007) we were not provided. Here are some of the
bills:
3.3 Allowance for Doubtful 3. 5 Confirmations not received
As of December 31, 2007, the company has not
Until the date of preparation of our report (31
recorded a provision to recognize possible credit
October 2007) we do not receive confirmation
losses. Whereas the company does not have a
portfolio old report in which the formation of the Invoice Observation
balance of each of the customers that make up its number
portfolio specified, it was not possible to determine
the effects on
accompanying financial statements that might result 001-001-003895 lost bill
if such an analysis had been carried out. 001-001-003951 lost bill
001-001-003952 lost bill
these percentages provision was made because most 001-001-003953 lost bill
customers are individuals and there are no guarantee 001-001-004002 lost bill
of their debts.
Portfolio punishment older than four years directly the following customers:
receivable in this case would be $ 331,841. Detail therefore presented as of December 31, 2007 was
charging $ 685.187
We reviewed the bank statements and could confirm
that lacked receivable until October 31, 2007 the
detail is presented below:
Detail therefore presented as of December 31, 2007 Analyze the differences presented in the above table and
was charging $ 685.187 proceed to debug and if necessary proceed with the
respective accounting affectations. It is also important to
mention that the registered sales should account have
RECOMMENDATIONS supporting documentation required by the authorities of
tax control; This supporting documentation serves as a
4.1 Difference between accounting support when running charges to customers of the
balances and invoices company and to possible revisions of the Internal
In order to provide accounting and financial Revenue Service.
information that is most useful to the company, we  Implemented as routine process the monthly review
suggest that all sales are invoiced and recorded for of the balances, both major accounting and tax
accounting purposes; We further recommend that the returns.
payments of value added tax (VAT) are made on the  Remind staff responsible for preparing tax returns,
basis of those sales and the dates established in the regarding the provisions of the Law of Internal Tax
tax regulations. Regime in Article No.21-A, which states: "the
Finally, in order to improve internal control over this financial statements will provide a basis for filing
area, we recommend: tax returns . "

4.2 Physical bills not provided
 In order that all recorded in the financial
statements transactions have documentation of
adequate support, we suggest the company to
keep a running file of invoices issued and keep
these records for at least seven years as
stipulated in the Basic Law Internal Taxation; In
this way the company would cover any revisions
to the tax control authorities.
 Billing Regulation indicates that invoices are
canceled should be replaced by a new one, and
the void must be filed with the full game; so we
recommend that when these cases arise proceed
in accordance with the stipulations of that
regulation. Additionally, it is convenient to put
the seal aside in the
original and all copies of invoices to avoid
possible misuse of such documents.
4.3 Allowance for Doubtful
In order to present the accounts receivable valued at
their estimated recovery value, as required by
accounting principles generally accepted accounting
principles and maintain an allowance for reasonable
uncollectible accounts, we recommend proper
analysis of the level of recoverability thereof, and be
necessary to determine and record the allowance for
doubtful accounts, prior authorization of an official
level. Importantly, this provision does not affect in
any way the efforts must continue to make the
company to recover all of your accounts receivable.
In addition, we recommend the company to prepare a
seniority list portfolio, which will facilitate portfolio
analysis and should contain at least the following
information:
 Name of the debtor
 total amount owed
 Amount to overcome
 past due amounts:
 0 to 30 days
 31 to 60 days
 61 to 90 days
 From 91 up to 120 days
 121 onwards
Determining the date range that the report would
contain old, it can be modified according to the needs
4.4 Statements not provided
Financial statements are an important tool in making
management decisions of the company, in order to
have adequate and purified to a certain date
information, we recommend management to make a
determined effort to generate timely, reliable and
accurate information with special attention regarding
the establishment of the balance of accounts
receivable. The adoption of a conciliation procedure
and debugging balances allow the Company to
reduce the risk of the occurrence of errors or
omissions, as well as help improve control over the
aging of the portfolio and its timely recovery.
As part of this process of improving the internal
control, it would be the department requested
modification systems and / or revision of its system
portfolio, so that it allows you to generate customer
statements with cuts in previous dates.
4.5 Confirmations not received
Importantly, because they do not receive responses to
requests for confirmations sent to customers detailed
above, so a detailed charges were made later

5. References

http: /www.sri.gov.ec / sri / portal / main.do? code

= 47 http: /www.sri.gov.ec / sri / portal / main.do?
code = 77 http: /www.sri.gov.ec / sri / portal /
main.do? code = 189 http: /www.sri.gov.ec / sri /
portal / main.do? code = 217 http:
/www.sri.gov.ec / sri / portal / main.do? code =
237 http: /www.sri.gov.ec / sri / portal / main.do?
code = 106 www.ccsuc.com.ec/files/NEC6.pdf
www.ccsuc.com.ec/files/NEC9.pdf
www.ccsuc.com.ec/files/NIA8.pdf
www.ccsuc.com.ec/files/NIA9.pdf