User Manual - Real Audit
Contents
1. Private Public Total Points Performance Rating Total Points 0 301 Neophyte 0 301 302 353 Needs improvement 354 354 375 Developing slowly 377 376 397 Developing moderately 409 398 418 Up for Semi Senior 421 419 439 Promoted to Semi Senior 443 440 460 Up for Senior 465 461 481 Promoted to Senior 487 482 502 Up for Manager 509 503 523 Promoted to Manager 531 524 544 Promoted to Manager w bonus 552 545 565 Up for Senior Manager 573 566 or gt Promoted to Senior Manager 574 or gt Troubleshooting Here are some suggestions on how to address a few issues we ve found that might affect your use of the program for other help please e mail us at support realaudit com 1 a User name issues please be sure to use use your exact valid e mail address which serves as your user name or you will not receive our registration confirmation or be able to log in to the simulation Also remember that e mail addresses and passwords are case sensitive so if you register a name like Jstudent school edu you will have to use a capital J and the rest lower case to login b Credit card issues Some students are unable to find the security code required for online transactions with Paypal on their credit cards Please refer to the Paypal Payment Problem 27 selection on the left menu under Support on our Web site for examples of where to find the code on your type of credit card 2 Talking to server Firewall or Internet connection is2. Chris Kilroy is the senior in charge of the fieldwork She performs some of the audit tasks and in certain cases assigns others to the two staff assistants Marty Rice and Beatrice Rizzo There are also a number of non playing characters NPCs to interact with using the Inquire button including Lisa Abe Johnson Delilah Sanchez Mr Beauchamp Russ Garaud Kami Lee Jake Heather Castillo Sal Edgar Clarence Eastwood The Receptionist The CEO AR Clerk Credit Manager Fixed Asset and Inventory Clerk AP Clerk Warehouse guy Warehouse gal Traffic Manager Mysterious associate of Russ The Controller The Game The game immerses you into the responsibility of assuring the fairness of a company s financial statements These financial statements are requested by bankers or equity investors as a condition of obtaining credit or investment capital The economic problem is that capital is scarce and only the most efficient companies are able to raise and retain necessary investment Unfortunately accounting information used by investors and creditors to determine who is most efficient may be in error or easily manipulated by unscrupulous CEOs and CFOs While it is the auditor s job to uncover and eliminate these financial statement errors and irregularities clever management may obstruct the auditor s progress or conspire to keep the auditors from discovering the problems Hence in financial reporting there can be winners and
3. then select the 1280x800 setting If you are using a standard 4 3 aspect ratio monitor at 800x600 or below then select the 1024x768 setting Then click continue If you do not like the screen resolution you have selected after logging in to the game please start a new game and try a different setting Install Folder C Program Files Real Audit is the default and should not be modified unless you had to install the program to a different directory If so modify this data to the exact location you used and don t forget the forward slash at the end The login screen At the login screen please type in your account which is your registered e mail address and your password Then click the login button to connect to the realaudit com server You will need an active Internet connection to use this software Username O Login The version number of the software is shown in the lower right corner Remember me If you are using the simulation on your own personal computer you can check remember me and the system with store your e mail address so you don t have to type it in every time This feature should be used used if you are using the simulation in a college computer lab or public computer The initial briefing After logging in to the realaudit com server you will be taken to the firm s office for an initial briefing from the Audit Manager Left click the choices below the audit manager to ask questions and cont
4. and pick up at an earlier game point without having to start a whole new game Don t forget to use the save button and give your save file a good descriptive name as the simulation does not automatically do this for you For example after completing the first step on AR you could name your save file AR 1 20 pts 041207 The system will automatically add txt to the end of the file The audit assignments Once you have mastered use of the auditor s virtual desk you are ready to begin your auditing assignments The first assignment in most courses will be to get to know the client assess engagement risk and decide whether to continue the engagement or not Guidance on what to do Guidance concerning the work to be performed is laid out in the audit program The work objectives are obtained with the Tab key Additional guidance is provided in this user manual and the help keys You should also consult the Audit Manager before starting an area or during your work to address frequently asked questions Multitasking Real Audit is a graphic intensive adventure that like in the real world requires your undivided attention and concentration Breaking every few minutes to check your e mail is not recommended or is running other applications that could interfere with the operation of the simulation such as a media player Multitasking is therefore not supported Assess engagement risk accept or withdraw Assessing engagement risk involves est
5. 1 121 138 Needs improvement 139 155 Developing at a slow rate 157 172 Developing moderately 174 188 Up for Semi Senior 191 204 Promoted to Semi Senior 208 220 Up for Senior 225 236 Promoted to Senior 242 252 Up for Manager 259 268 Promoted to Manager 276 284 Promoted to Manager w bonus 292 300 Up for Senior Manager 308 301 or gt Promoted to Senior Manager 309 or gt Completing PtAR FA CoTA Private Public Total Points Performance Rating Total Points 1 160 Neophyte 1 161 174 Needs improvement 178 189 Developing at a slow rate 195 204 Developing moderately 212 219 Up for Semi Senior 231 234 Promoted to Semi Senior 248 249 Up for Senior 265 264 Promoted to Senior 264 279 Up for Manager 282 294 Promoted to Manager 299 309 Promoted to Manager w bonus 332 324 Up for Senior Manager 347 325 or gt Promoted to Senior Manager 348 or gt 26 Full version when completing PtAR FA AP INV Private Public Total Points Performance Rating Total Points 0 251 Neophyte 0 251 298 Needs improvement 299 320 Developing slowly 322 342 Developing moderately 344 363 Up for Semi Senior 366 384 Promoted to Semi Senior 388 405 Up for Senior 410 426 Promoted to Senior 432 447 Up for Manager 452 468 Promoted to Manager 476 489 Promoted to Manager w bonus 497 510 Up for Senior Manager 518 511 or gt Promoted to Senior Manager 519 or gt when completing PtAR FA AP INV CoTA
6. 8 FA 3pts clientrelations 0 allsteps done 041207 TXT E AR AP 53pts080705 TXT E AR AP INV 88pts080705 TXT E AR FA 51 15 3 lost 5 8 neg 051607 TXT EI FA 24 AR 58 P 8 pts clientrelations 0 allsteps 90 pts 041207 TXT E FA 32 AR 55 3 lost P 18 pts allsteps 109 exp pts 051507 TXT E FA 32 AR 58 P 8 pts clientrelations 0 allsteps 98 pts 041207 TXT Recent Desktop A My Documents E INV 13 pts just E INV 13 pts just E INV 16 pts just E INV 19pts befor E INV 27pts after E INV 29 pts after E INV 32pts stuck E INV 34 pts befo E INV 35pts stuck E INV 59 pts 0931 EJ INV 60 pts befo E INV 67 pts after INV 67 pts after E INV 67 pts after E INV 71 pts after TEA GL E FA 32 AR 58 P 18 pts allsteps 108 exp pts 041307 TXT a E P 0 pts 050907 FE INV 4 pts after neg fix before physical 111406 TXT E P 22 pts 08080 EL INV 4 pts after neg fix save of loaded game before physical 111406 TXT P 29 pts 04130 FA 32 AR 58 P 18 pts allsteps 109 exp pts 041407 Tx al files Cancel File name Save as type For example you can save to a folder on your hard drive or to a removable USB flash drive In the example above we are saving to a folder on the hard drive which we have previously created and named saved games Because of the freedom you are allowed in where and on what medium you can use to save your games however you must be careful not to lose or corrupt your save game files Ple
7. Copyright Dr John A Schatzel 1994 2012 d e Continue User Manual v 7 82 10 11 13 Table of Contents Welcome to the Real Audit Simulation Installation to hard drive or USB flash drive The Characters The Game Quick Start Real Audit The Simulation Game An In Depth Guide First steps The menu Selecting the audit environment and login The initial briefing The game tutorial The auditor s virtual desk and navigation The audit assignments Guidance on what to do Engagement risk acceptance or withdrawal Engagement planning Analyze financial statements Assess materiality Evaluation of internal control design and implementation Audit of Internal Control Public company only SOX 404 Opinion Public company only The required team meeting Complete summary of risks of material misstatement Reviewing the audit strategy Complete the planning memo Balance testing Auditing accounts receivable and fixed assets Auditing accounts payable and inventory Full version only Audit Performance Report The results screen and example rating tables Troubleshooting 10 13 13 14 16 17 17 23 25 27 Welcome to the Real Audit Simulation The time has come to show the world that you have what it takes to work for a public accounting firm In the real world new audit staffers are sometimes interested in simply getting the assigned work done In this regard they focus on completing the audit program to th
8. High 2 Assess planning materiality i DO Moderate 3 Identify significant accounts Ej Low and assestions O and implementation 4 Evaluate internal control design Done O Select the level of engagement risk you have estimated and then click Done Your engagement risk assessment and your decision to continue the audit or not should be discussed later in class Engagement planning After assessing engagement risk the next set of assignments involves engagement planning The purpose of planning is to understand the entity and its environment including internal control design and to identity any risks of material misstatement including fraud SAS 104 111 requires that a number of risk assessments procedures be performed You must also establish or review the audit strategy Analyze financial statements To analyze the financial statements select Financial Statements on the evidence list with your mouse and then click the analyze button below The analyze procedure will generate a set of ratios which you should study to see if the client s figures are unusual relative to the industry Variations relative to your expectations based on knowledge of the entity should be investigated Some unusual relationships can be explained by plausible business reasons but others may indicate a heightened risk of material misstatement When you are finished analyzing the financial statements you should indicate that you have completed the tas
9. ase be sure to write down the location of your saved games folder If you are using a USB flash drive be sure that you eject it safely With a removable drive you can transport your saved games from one computer to another However pulling a USB flash drive from the USB port without clicking to eject it safely can result in loss of data and your save game will no longer work If this happens you will need to start a new game or use a previously saved game under a different name It is highly recommended that you have multiple saved games under different names Use a name that corresponds to the last audit program step you completed That way you can load a saved game from a particular progress point Selecting the audit simulation and login settings After starting anew game you must select an audit simulation and login to the realaudit com server The audit environment includes the client type style and response Type Style Client Type Client Style Friendly Unfriendly Client Response EMCEE Gee NO Change Install Folder C Program Fi Continue Private company select this option to audit a private held corporation This audit tends to emphasize planning and substantive testing Public company select this option to audit a publicly held corporation This audit includes Sarbanes Oxley Section 404 internal control testing as well as planning and substantive testing Friendly this option results in a client
10. at least 20 MB of free disk space right click on My Computer and then select Explore to check for free space 3 Double click the setup file 4 If using Windows Vista or 7 it may give a security warning just click Run 5 At Welcome screen click Next gt 6 Read and agree to the license agreement please 7 Destination folder should give default C Program Files Real Audit this needs to be carefully changed to your flash drive to do this click just before the letter C on the left next press the Delete key once to delete the letter C only now type the letter of your flash drive should be reported to you after you insert the flash drive into your computer s USB port in its place 8 Now click Install Important if installing on a restricted school computer the installer will not be able to install the Party font to the Windows folder and will probably give a warning just continue and make sure the installer gets to Finish 9 Start the simulation from Start menu Programs Real Audit tm Real Audit tm login via Internet the install path in the login routine should now detect where the software was installed or is currently running in case the flash drive letter changes The Characters There are five members of the audit team in the simulation Ian Steele is the audit manager He provides initial instructions and can be consulted subsequently for additional help Kate Masters is the overall partner in charge of the engagement
11. at there are no material weaknesses The SOX 404 Opinion After assessing all relevant elements of the COSO framework aggregate your evaluation of the internal control over financial reporting and enter it into the audit program step 5 There are four possible reports on internal control including unqualified adverse qualified or disclaimer Select the one that matches your conclusion The required team meeting SAS 104 111 requires the audit team to meet to brainstorm and identify possible risks of material misstatement including fraud Normally your instructor will assign you to a team for this purpose After completing your meeting you should check off step 5 in the private version or step 6 for the public company and record your conclusions 21 Complete summary of risks of material misstatement After performing risk assessment procedures including inquiry analytical procedures and the required team meeting you need to compete the schedule of identified risks of material misstatement After identifying these risks they should be linked to the accounts and assertions they may affect In some cases you may conclude that the financial statement risk is general and may therefore affect all of the accounts Assessing overall detection risk Detection risk is the chance that the auditor s tests of balances may fail to detect a material misstatement In planning detection risk can be computed quantitatively by dividing the desire
12. audit fee can also have an impact on the outcome of the engagement Installation Minimum configuration Real Audit was designed for PCs using Windows 98 ME 2000 XP Vista or 7 with a 600 MHz processor or higher 256 MB of RAM or higher or Mac OS X a video graphics card with 16 MB of RAM capable of switching to 1024x768 resolution some older or inexpensive computers e g Netbooks may have the graphics chip built into the motherboard and can not support the simulations setting of 1024x768 screen resolution When this happens the simulation will not display properly a sound card speakers or ear phones 20 MB of free space on your hard drive or USB Flash drive Install process 1 Close any open applications and check that your hard drive or flash drive has at least 20 MB of free disk space right click on My Computer and then select Explore to check for free space 2 Go to the realaudit com web site and select Simulations from the main menu To order click Student orders here and read the student ordering instructions Next fill out and submit the order form After you make your payment select Download instructions and read the important downloading information When ready click the appropriate Click here to download link and save the setup file It is recommended that you save the setup file to your desktop for easy access or to whatever folder you prefer After the download is complete you need to double click th
13. d level of audit risk by the assessed levels of inherent risk and control risk The resultant detection risk will be an indicator of how thorough the nature timing and extent of balance tests need to be to keep the level of audit risk acceptably low Your overall assessment of detection risk should be entered in the audit program under planning step 7 Reviewing the audit strategy In Real Audit a preliminary audit strategy has already been chosen and documented in the first draft of the planning memo a copy of which can be obtained from the audit manager Your task is to review the preliminary audit strategy and decide whether it is appropriate A rationale for the preliminary audit strategy has been provided Please review the rationale provided in the planning memo and indicate whether you concur with it or not Your review of the audit strategy should be entered in the audit program under step 8 Complete the planning memo The planning memo is a summary of what has been done in the planning stage of the audit To save time it has been partially completed Your task is to review what has been documented thus far and to complete the memo by creating attachments for the sections that are incomplete Instructions for completing the remaining sections are provided on the planning memo The attachments to the planning memo should be prepared on your wordprocessor 22 Balance testing After you finish the audit planning click the AR but
14. e rent expense to make sure that there are no assets that should have been capitalized To test the rent expense you will need to obtain a copy of the lease from the fixed assets clerk hint 23 you will need to ask the right questions to get it Finally you need to test the depreciation and review the disclosures for adequacy Auditing accounts payable and inventory Auditing accounts payable also has similarities with accounts receivable but is very different in other ways To audit accounts payable obtain the accounts payable listing from the accounts payable clerk Clerically check it as usual and compare it to the general ledger Then inspect available vendor statements on a test basis and have the client reconcile any differences Sometimes the differences are the result of in transit items but in others adjusting entries may be needed The big difference with accounts payable as compared to accounts receivable is with the valuation assertion With payables you are not concerned about overstatement due to bad debts In fact the biggest risk is usually understatement due to unrecorded liabilities To search for unrecorded liabilities you will need to look through the cash disbursements journal after year end to see if any payments have been made for items that were received during the fiscal year If any are found an adjusting entry may be needed Last but not least is inventory the most complex of all the accounts in this simulati
15. e satisfaction of the senior or supervisor in charge of the engagement Completing assignments generally involves gathering the evidence necessary evaluating the evidence relative to established criteria generally GAAP and then documenting the work and findings In the larger scheme of things however auditing is a business And the objective of that business is to make a profit while serving the public interest In principle auditing firms make a profit by charging their clients fees and by managing their expenses The primary cost in auditing is staff salaries which are generally incurred on the basis of hours worked and charged to the job Therefore accurately estimating and controlling the numbers of hours performed on each audit task is important In this simulation you are placed in charge of an audit engagement and given a series of tasks to complete You are also assigned two inexperienced staff auditors who are automatically assigned audit tasks by you The tasks range from getting to know the client to testing their financial statement balances At the end of each account you need to discuss your findings with the Controller and then report back to the Audit Manager to receive a full staff evaluation Your performance will be judged on your success in locating the necessary evidence through inquiry and other audit tests and your ability to identify and negotiate the needed audit adjustments Your ability to control efficiency and the
16. e setup file wherever you saved it and follow the installation instructions The software should then be installed to the recommended folder C Program Files Real Audit If your school prevents installations to the C drive you may modify the install drive to whatever your school recommends e g M or any other drive they make available for software installation If you change the installation folder to another location say M Program Files Real Audit you will need to enter this information just before you log into the simulation the first time so it will know where to look for the program files IMPORTANT Be sure the setup file runs to the end of the installation and that you are able to click the Finish button If the setup file reports an error message during the installation and does not finish you will need to delete the corrupted setup file and download a fresh copy from http realaudit com studentdownload html From time to time files downloaded from the Internet can be corrupted by filters or bandwidth management software installed on college networks We apologize for this inconvenience but it does happen sometimes 3 After the installation is complete you can launch the simulation from the Windows Start menu then Programs Real Audit tm Installation to USB Flash Drive 1 Follow instructions on web site to download the setup file to your desktop 2 Close any open applications and check that your hard drive or flash drive has
17. e status window Experience these points are earned as you gather evidence and perform procedures Client Relations this tracks how positive or negative you are in your interpersonal transactions with the client Being polite or cordial can increase this variable while being rude or sarcastic can decrease it Independence this tracks your objectivity appearance and apparent state of mind by avoiding questionable relationships or subordinating your judgment to the client Efficiency this variable is affected by the number of times you perform the same procedure and by your sample size decisions Audit fee this represents the overall accumulated cost of the audit It starts out at 10 000 and then increases as you gather and evaluate evidence Audit Program click here to open the audit program The audit program is where you keep track of the tasks to be performed and your findings Using the audit program effectively is critical to your success in the simulation game GL this is where you can view the client s general ledger Menu click Menu or press Esc to open the in game simulation menu Use this menu to create a saved game file on your hard drive or whatever location you choose and to quit the game when you re done It is recommended that you create a saved game file after completing each step on the audit program That way if you want to go back and repeat certain inquiries or other steps you can load a previous saved game
18. entity level control will be audited by observing Board meetings and by conducting an employee survey After auditing entity level control including the control environment risk assessment information and communication and monitoring you should enter your assessment into audit program step 4 Your conclusions should be based on whether you believe these elements are effective or not Effective according to the SEC means that there are no material weaknesses or patterns of significant deficiencies which in the aggregate could be material Clicking the box will open the following yellow colored pop up containing a drop down list for each of the five factors Select and hold down the left mouse button to enter your conclusion Planning Re ESTER TEEN Understand the entity and its The design and impleme ion of environment the following Aternal o Ei 1a Inspect the permanent file b Make inquiries of management c Inspect financial statements and do analyical procedures d Evaluate engagement risk 2 Assess planning materiality 3 Identify significant accounts and assestions 4 Evaluate internal control design and implementation Next within the IC module you will move on to activity level control Activity level control will be audited by obtaining walkthroughs of the revenue cycle and the expenditure cycle from the appropriate personnel reading the documentation in the permanent file and filling out the relevan
19. er must not exceed Windows limits which are 8 folders deep or a path of not more than 255 characters we recommend using the saved games folder within the Real Audit folder You must also be careful if you are transporting your saved games on a USB flash drive to eject the drive safely Pulling the drive from the port without ejecting safely can cause you to lose data or corrupt your save game file If that happens it will not restore your game correctly To safeguard against this it is recommended that you save frequently using different save game file names corresponding to the last audit program step or account you completed See page 8 of this manual for an illustration That way you can revert to a prior save point if necessary 28 5 Graphic card if the program looks cut off at the bottom of the screen or seems to be squeezed to left side your graphic settings are probably not at the 1024 by 768 resolution required to run properly Real Audit tm normally changes your screen to the proper setting in most cases but with some older computers the screen resolution must be changed manually Ifthis happens right click on the computer screen called the desktop and then select Properties from the drop down menu Next select the Settings tab on the Properties window you just opened Next drag the Screen resolution bar to 1024 by 768 and click the Apply or OK button Then make sure to accept the new setting before it reverts back to the o
20. ermanent File and then clicking Inspect You may also do a number of other things at the virtual desk such as answer the phone print your findings move on to the next assignment view the status window open the audit program view the general ledger and open the in game simulation menu Navigation The full version of the simulation is organized into six modules and so you must use the account button just to the left of the audit program button to navigate through the modules After the game tutorial all versions of the simulation start with the Planning module From there it varies depending on whether you have chosen the Public Company addon morph or not The base Lite version has four modules If you do them all the typical path through the simulation by left clicking the account button would be Planning gt AR gt FA gt CoTA If you add the Public Company morph to the Lite version an IC internal control module is added The typical path using the account button then would be Planning gt IC gt Planning gt AR gt FA gt CoTA The full version has six modules The typical path using the account button is Planning gt AR gt FA gt AP gt INV gt CoTA If you want to skip around you can right click the account button to change the order Adding the Public Company morph to the full version results in seven modules which typically unfold as follows using the account button Planning gt IC gt Plann
21. imating the likelihood that your firm will suffer a financial loss by associating with the client There is always the threat of being sued by investors or creditors because you fail to warn them of serious financial problems or of financial reporting fraud Therefore you need to assess the likelihood of bankruptcy or other problem that would interfere with your client s ability to continue in the ordinary course of business and of management cooking the books There are many other ways to lose money on an audit engagement that must also be assessed such as tainting your reputation being fired or not billing all of the hours or other costs incurred on the engagement You can obtain the necessary information to assess the various engagement risks by studying the financial statements inspecting the permanent file and by talking to management After assessing all of these factors aggregate your estimate of losing money on the audit and enter your assessment of engagement risk into the audit program see step 1 d below When you click the check box for step 1 d a yellow colored pop up should appear Planning Based on my understanding of this client and its management 1 am tating engagement risk at Understand the entity and its environment 1a Inspect the permanent file b Make inquiries of management O unacceptable c Inspect financial statements and do analyical procedures m C very High d Evaluate engagement risk er je
22. ing gt AR gt FA gt AP gt INV gt CoTA Answering the phone right click on the phone to answer it when it rings Printing Findings click here to print reports from planning accounts receivable fixed assets accounts payable and inventory You will be prompted for each report one at a time Status this opens the status window This is where you can keep track of your experience points and the accumulated audit fee This is one of the more advanced features of the game so be careful not to let it side track you when you are first starting out These variables are important when you are role playing and are trying to maximize all aspects of your game performance When just adventuring and you are simply trying to acquire a feel for what audit practice is all about these variables are sometimes better ignored The general model for success in this game is to gather the evidence needed make the adjusting entries necessary for fair presentation and effectively negotiate the adjustments with the Controller while minimizing the audit fee If your instructor assigned a presentation to the Audit Committee then your ability to find all of the items to be brought to their attention is also a factor Your outcomes may also be affected by your maintenance of client relations independence and efficiency which affect your reputation These variables can impact your negotiation score Here is an explanation of the variables tracked in th
23. inue the discussion Atthe end of the briefing you should proceed to the Game Tutorial The game tutorial Upon entering tutorial mode you will see instructions at the top of the screen It is recommended that you read the instructions carefully and click Next gt to continue For those of you who are very brave or impatient you may click Close at any time to leave the tutorial and begin the actual simulation game You can also leave the tutorial with the close button if you need to quit the simulation You will then need to navigate to the auditor s virtual desk explained next to access the in game menu and the quit button 13 The auditor s virtual desk and navigation After closing the tutorial you will need to find your way to the auditor s virtual desk This is where planning the audit begins Some useful items such as the permanent file drafts of the financial statements and parts of the planning memo have been left for you but you must inquire the audit manager to pick them up Should you desire more briefing on planning you may inquire the audit manager again for more help maneft File ancial Statements li lalala 2 n Planning Memo AR Print Findings Inquire Inspect Analyze Status Menu a a Evidence on the auditor s virtual desk may be selected by clicking the desired item on the evidence list and then clicking the desired audit procedure below For example you can open the permanent file by clicking P
24. k by clicking step Ic in the audit program Assess materiality The FASB defines materiality as the magnitude of an omission or misstatement of accounting information that in light of surrounding circumstances makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement In Real Audit you need to assess planning materiality as the dollar amount relative to pretax income In doing so you need to take into account the nature and size of potential financial misstatements as well as who is relying on the financial statements Planning materiality should be entered into the audit program by clicking planning step 2 Identify significant accounts As part of planning you need to review the financial statements and identify accounts that have a reasonable likelihood of containing a material misstatement Your conclusions should be entered in step 3 of the audit program Evaluation of internal control design and implementation Private company skip to next section if using the Public Company addon morph SAS 104 111 require the auditor to evaluate the design and implementation of all five components of the COSO framework for internal control when auditing a private company The entity level control and activity level control checklists contained in the simulation should be used to simplify the task To assess the control environment you need to revie
25. ld one The simulation should now look properly on the screen 6 True Type Font couldn t be installed shouldn t be a problem if you are installing the software on your own computer However if you try installing the simulation on a school computer that has installation restrictions a cursive font named Party TTF used by Real Audit may not get installed The program will run properly but when you look at signatures on documents like receiving and shipping reports they will look like Jake instead of Jar The solution is to install the software on a computer without installation restrictions or contact your IT technical staff and have them install the program as they have the proper permissions on the school computers to do so Copyright and Trademark Copyright 1994 2013 realaudit com Real Audit is a trademark of realaudit com and Dr John A Schatzel All Rights Reserved 29
26. losers and various factors such as the volatility of the economy the complexity of the client s business or the client s management may keep the auditors from the truth Quick Start Jump right into the game not recommended For those with prior computer gaming experience e g adventures simulations or RPGs who want to get started without reading the manual not recommended here s what you need to begin playing the simulation The basic idea is to complete the audit program and record your findings Launch the simulation from the Windows start menu Click on new game Get initial briefing from Audit Manager Try the game tutorial or skip it if desired Find your virtual desk Go meet the client and start gathering evidence Use the audit procedure buttons to test the evidence Use the multiple choice dialoguing engine to speak with the client Record your findings in the audit program Negotiate your findings with the Controller Report back to the Audit Manager Should you have difficulty navigating finding all of the evidence negotiating or using the audit program it is highly recommended that you read the rest of this manual and complete the initial game tutorial Real Audit The Simulation Game An In Depth Guide First steps The menu After you launch the game from the Windows Start menu and click Continue on the game title screen you will see the initial game menu New Game N Load Game Quit Ne
27. nces reconciled and explained by the accounts receivable clerk this is done automatically to simplify the process Next the most complicated part of auditing accounts receivable involves estimating the bad debts Estimating bad debts requires making assumptions and developing a bad debts estimation model Start with last year s bad debt expense to sales ratio and then modify it for current information such as the percentage of delinquent accounts and information in the credit files Then compare your estimate to the client s Finally the auditor needs to conduct cutoff tests to ensure that sales were recorded in the proper period The shipping reports can be accessed through the AR clerk s computer You ll need to ask her to gain access to them After completing each of the balance tests your findings should be entered in the audit program for accounts receivable For additional hints you may consult with the audit manager Auditing fixed assets is similar to accounts receivable in some ways but very different in others Like with accounts receivable you will need to begin by talking with the fixed assets clerk and obtaining the schedules he has prepared for you After obtaining the schedules you will need to clerically check them and compare them to the general ledger Next you need to vouch the fixed asset additions and to ensure that nothing was charged to repairs and maintenance that should have been capitalized Then you will have to test th
28. on In this case the first thing you need to do is meet with the audit manager to get an overview of planning for the physical inventory At the end of this discussion he will give you a copy of the inventory planning memo prepared by management Read through this document and make sure that all important aspects of taking the physical inventory have been taken into account Next observe the physical inventory and obtain some test counts The test counts should be tied into the inventory summary later The summary should also be clerically checked and tied into the general ledger Finally you need to test the inventory pricing This includes tests for both lower of cost or market and slowing moving or obsolete inventory Finally make sure that disclosure is adequate 24 Audit Performance Report Each time you quit the simulation you will be taken to the report screen below The screen tells you how many experience points you have earned and how many hints you have used Experience points are earned as you gather needed evidence throughout the game Hints may be obtained from the audit manger but do not affect your score staff Performance Report Experience Hints Conclusions Negotiation St Rating Planning Accounts Receivable i Fixed Assets Accounts Payable Inventory Completing the Audit la Overall After discussing your findings with the Controller and reporting back to the audit manager as per his instructions yo
29. sue if you are using a firewall please allow the simulation to contact realaudit com or you will not be able to log in The message Talking to server will blink because communication with the server is being blocked by your firewall You also need to have a live Internet connection so if you have dial up please be sure to connect to the Internet before you Start the program or you will not be able to connect to the registration server 3 Install folder this can be an issue if you change the default install folder in the setup file you downloaded from C Program Files Real Audit to something else Some schools do not allow software to be installed to the C drive If you change the install folder please write down the EXACT folder you used Then the first time you log in to the simulation from the Start menu and reach the screen with the Install folder setting it comes after Continue New Game Choose Auditor Style you must edit the C Program Files Real Audit to the exact folder you used For example say your school requires software to be installed to a J or M drive All you need to do is change the Install folder setting to the correct letter such as J Program Files Real Audit before you Continue and you should be all set If not you will get the following error message 4 Save game issues because of the freedom you are allowed in where to save your games you must remember the folder where you saved your games to The fold
30. t activity level internal control questionnaires To test the control activities for operating effectiveness you will need to take a sample of transactions and test them to see if the client is carrying out the controls as designed In the expenditure cycle you will test a sample of paid invoices The audit manager will give you a schedule of tests to perform The tests involve a number of documents including the paid invoices related purchase requisitions purchase orders receiving reports and canceled checks A screen shot of the test of controls on the bill paying procedures is as follows 20 Paid Invoices Invoice vA sae Capital Cities Advertising 7 Check Requisitions x ee Se Raar aaraa 0311335 999 555 1367 Check Requisition 3 No 890220 Requested by F ry_di Pee OF Amount 18 765 00 Date 07 21 04 Description Project Code 12 3401 For adverting services in connection er oe er with the film Miles Beyond Payee Capital_Cities_Advertising Purpose of disbursement FR a R err Advertising under contract for the film Miles Receiving Reports e Beyond to be released on October 1 2004 Approved by Da Paes 10931 After auditing activity level control including the revenue cycle and the expenditure cycle you need to enter your conclusions on control activities into step 4 of the audit program Your conclusions should address whether the control elements are effective or not Again according to the SEC effective means th
31. that is generally friendly towards its auditors Neutral this option results in a client that neither goes out of its way to be friendly or unfriendly to its auditors Unfriendly this option results in a client that is not happy about being audited and include responses that are unfriendly and possibly outright antagonistic toward their auditors Response Automatic selecting this option allows the computer to control the pace of the client s response to the auditor s questions Manual this is the default option which allows you to control the pace of the client s responses with the space bar While this approach is less realistic it allows you to take as much time as you want to read each response In manual mode the response pauses To continue the discussion you must press the space bar Screen Resolution No change this is the default option which allows the simulation to run without making any change to your current screen resolution The game requires a screen resolution of 1024x768 or higher to display properly If your monitor is set for less than 1024x768 e g 800x600 select the change option to have the simulation adjust your monitor setting to one that will display the program more appropriately Change this option will allow you to adjust your display setting to 1024x768 for a standard monitor or higher if you are using a wide screen monitor or laptop If you are using a wide screen monitor 16x9 aspect ratio
32. ton and you will be provided with a new evidence list for a new set of audit tasks These tasks are described on the next page of the audit program Click the next page button the right side of the audit program and you will see the next set of auditing procedures which are for the accounts receivable You will also note that the evidence lists for each set of account testing procedures is quite short and generally begins with just the accounting clerk in charge of that area Your task is to begin testing account balances by obtaining the necessary schedules from the accounting clerks and to apply the appropriate auditing procedures In Real Audit it is common for you to perform your audit procedures on one assertion at a time so it will be generally necessary to make follow up visits to the client for additional schedules and or explanations The lite version includes accounts receivable and fixed assets The full version also includes accounts payable and inventory Auditing accounts receivable and fixed assets In accounts receivable the first step in the audit program is to obtain the aged trial balance from the client and to make sure it is clerically accurate Testing for clerical accuracy involves making the appropriate recalculations of the trial balance and comparing the footing i e total to the general ledger After testing clerical accuracy you will need to confirm the account balances with the client s customers and have any differe
33. u will receive a more complete performance report The performance report provides information about progress in completing important branches of the story and gathering needed evidence this is expressed as an experience score an assessment of the conclusions drawn in the interactive audit program this is based on a formula that was created to measure how close the conclusions entered into the audit program are relative to a model solution and a score for the percentage of adjustments accepted by the client this is expressed as a negotiation score calculated by formula adjustments booked adjustments proposed 10 These three elements are then combined into an overall score which is assigned a rating on an 11 point categorical scale ranging from neophyte to promoted to senior manager The ratings measure how well the student has analyzed and synthesized the evidence and evaluated the results 25 The following tables are examples of what the simulation uses to assign performance ratings Planning only Lite or Full version Private Public Point range Performance Rating Point range lt 17 Just learning lt 17 33 Needs experience 35 44 Fair 48 56 Fair to Good 61 63 Good 69 70 Good to Very Good 77 77 Very Good 85 84 Very Good to Excellent 92 91 Excellent 99 92 gt Outstanding 100 gt Lite version when completing PtAR FA Private Public Total Points Performance Rating Total Points 1 121 Neophyte
34. unless substantive tests alone are not sufficient Such controls are normally part of transaction cycles that rely heavily on electronic data processing and consequently there is less written output to test Controls are not tested for operating effectiveness in this simulation when the private client type is selected Audit of internal control design and operating effectiveness Public company go back to the previous section if using the Private Company client type According to the Sarbanes Oxley Act of 2002 the auditor must audit the design and operating effectiveness of the internal control over financial reporting using the internal control framework chosen by management In this simulation management has chosen the COSO Integrated Framework for Internal Control The PCAOB also requires that auditors take a top down approach to their audit of internal control which means that they should start with entity level control and then proceed to activity level control The IC module in this simulation follows the top down approach Hence when you begin the IC module you will audit entity level control design first This will be accomplished by obtaining an overview of the governance structure from the CEO and by filling out an entity level internal control questionnaire Several factors such as ethical values management style influence of the board of directors and commitment to competence should be considered The operating effectiveness of the
35. w Game Starting a new game allows you to begin the simulation from the beginning Load Game Load a previously saved game Choose this option when you want to resume from a previously saved progress point in the simulation Quit Choose quit when you want to leave the simulation and return to Windows Additional options on the in game menu see page 13 for more details Once the game has started additional menu options are available including Save Game To save the data you entered in the audit program and your game progress the simulation does not do it automatically click this button Use descriptive names for each save For example after completing planning step 1 you could name your file P 1 041107 After completing planning step 2 you could use P 1 2 041207 This way you can revert to a previous point in the simulation without having to start anew game How and where to save your games After clicking the save game button a save window will appear with a save in drop down box The drop down allows you to select the folder and medium for your save Save File 2x Save in B saved games 3 mca E AP 24 pts 102805 TXT E AP 30 exp 70 conclusion 110706 TXT E AR 16 pts clientrelations 1 allsteps done TXT E AR 47 P 8 pts clientrelations 0 allsteps done 032307 TXT E AR 50 pts clientrelations 1 allsteps done 032107 TXT E AR 54 max 051507 TXT E AR 55 25 3 55 max 051507 TXT E AR 58 P
36. w the control documentation contained in the permanent file and interview the client Several factors such as ethical values management style influence of the board of directors and commitment to competence should be considered To evaluate activity level control you will need to interview the accounts receivable clerk After assessing all relevant factors aggregate your evaluation of the five elements of the COSO framework and enter them into step 4 of the audit program Clicking the box will open the following yellow colored pop up containing a drop down list for each of the five factors Select and hold down the left mouse button to enter your conclusion Planning Understand the entity and its environment 1a Inspect the permanent file b Make inquiries of management c Inspect financial statements and do analyical procedures d Evaluate engagement risk 2 Assess planning materiality 3 Identify significant accounts _ Control Activities The design and implementation of the following internal control elements is adequate Control Environment Risk Assessment Information and Commun Monitoring and assestions 4 Evaluate internal control design Bone and implementation Control Testing Private company skip to next section if using the Public Company addon morph In private companies it is not required to test controls for operating effectiveness according to law like it is for public companies
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