Title: Materiality and Liabilities Testing – Gabriela Aguiar LLC Audit Case
In this mini-case, you will audit and evaluate documents, such as debt confirmations, vendor invoices, etc., in the audit of all of Gabriela Aguiar LLC's liability accounts. To expedite the audit process, your audit teammate has already picked up the PBC schedules and scanned and labeled them in the binder for you.
Case Background
FGCU-Accounting CPA firm has been engaged to audit Gabriela Aguiar LLC, a company based in the Fort Myers area. The audit team is led by partner Isabella Dewitt, with Ben Goldman as the audit manager. You are a senior auditor assigned to the liabilities testing portion of the audit.
Company Information:
Gabriela Aguiar LLC CEO: Gabriela Aguiar
Board of Directors: Kevin Arce, Elie Bassil, John Blasi, Connor Cizek, Stephanie Clemente, Colby Collins, Chestina Conduah
Company Background
Gabriela Aguiar LLC is a publicly traded company based in Fort Myers, Florida, specializing in luxury yacht manufacturing and leasing. Founded in 2010 by Gabriela Aguiar, the Company has grown rapidly to become a significant player in the high-end marine industry.
Key Business Details:
- Primary Business: Manufacturing and leasing luxury yachts
- Secondary Revenue Streams: Yacht maintenance services and marine equipment sales
- Market Position: Mid-sized Company with a strong presence in the southeastern S
- Recent Development: Expanding operations to the Caribbean market
- Public Trading: Listed on NASDAQ under the ticker symbol GAYL
Company History and Current Situation
Gabriela Aguiar, a former naval architect, founded the Company with a vision to create customizable, eco-friendly luxury yachts. The Company's innovative designs and commitment to sustainability quickly gained attention in the industry. In 2018, Gabriela Aguiar LLC went public to fund its expansion plans. The Company has since opened a new manufacturing facility in Fort Myers and established a leasing office in Miami.
Recent challenges include:
- Supply chain disruptions affecting the timely delivery of specialized materials
- Increased competition in the luxury yacht market
- Regulatory changes related to environmental standards in yacht manufacturing Financial Snapshot:
- Annual Revenue: Approximately $150 million
- Total Assets: Around $300 million
- Significant Liabilities: Long-term debt for manufacturing facilities, accounts payable to suppliers, lease liabilities for Miami office
Office Meeting with Your Audit Manager
Ben Goldman: Good morning, team. I hope you're all doing well. How's the progress on last month's assignment?
Team Leader: Good morning, Ben. We've just concluded the assignment, and we're working on submitting the initial report for your review by the end of the working day today.
Ben Goldman: Excellent; I'll be looking forward to receiving that report. Now, let's discuss your next assignment: the Gabriela Aguiar LLC Audit, specifically the liabilities testing. Given the company's recent expansion and the importance of this audit, we need to pay extra attention to this area.
Team Leader: Understood. What specific areas should we focus on?
Ben Goldman: I'm glad you asked. I've done a quick scan of the trial balance, and I have some concerns about accounts payable. I need you to investigate a couple of things there.
Team Leader: What should we be looking for in accounts payable?
Ben Goldman: First, look for any AP that should have been written off according to the company's accrual policy. Second, search for unrecorded accounts payable. I have a hunch there might be some liabilities that haven't been reflected in the company's books yet.
Team Leader: Got it. We'll thoroughly review the AP. Anything else we should be aware of? Ben Goldman: Yes, there's an issue with legal fees. I just heard from Gabriela Aguiar, LLC's attorney. They're preparing the legal confirmation for us, but they mentioned $2.8 million in legal fees related to hurricane damage litigation that haven't been billed yet for 2025 work.
Team Leader: That's a significant amount. How should we approach this?
Ben Goldman: We need an interim report on this to ensure we're comfortable that liabilities are complete based on your search for unrecorded liabilities.
Team Leader: Understood. We'll look into that and include it in our report. Any other areas of concern?
Ben Goldman: Yes, there are some developments with notes payable and their line of credit. I spoke with the controller about the new debt. They took out a new loan of $15 million and rolled the $12 million from the line of credit into it, effective January 2, 2025. There's something about this in the Board of Directors' minutes, so make sure to review those.
Team Leader: We'll definitely review the minutes and follow up on that new debt arrangement.
Ben Goldman: Also, they started a new line of credit for $44 million on January 7, 2025.
Team Leader: That's a substantial new line of credit. We'll look into the details as well.
Ben Goldman: Good. Now, regarding leases, the controller assured me they don't have any capital leases. I've looked over the assets, and I'm inclined to agree. You don't need to spend too much time looking for these, but keep an eye out, just in case.
Team Leader: Noted. We'll do a quick check on leases but focus more on the other areas you've mentioned.
Ben Goldman: That's right. Oh, and one more thing: payroll-related liabilities are being tested with payroll, so you don't need to worry about them while you are testing.
Team Leader: Understood. Is there anything specific you'd like to see in our deliverables? Ben Goldman: Yes, I'd like you to prepare a comprehensive audit plan for liabilities, including your materiality calculations and planned procedures. I also want to see a liabilities lead
schedule, an AP aging schedule, and your initial findings on the potential issues I've mentioned.
Team Leader: We'll make sure to include all of those in our work.
Ben Goldman: Great. Once you've completed your testing, draft an interim report summarizing your findings, mainly focusing on any material issues or discrepancies you uncover.
Team Leader: Will do. We'll keep you updated on our progress and let you know if we encounter any significant issues.
Ben Goldman: Perfect. Do you have any questions or need any additional information to proceed?
Team Leader: I think we have a clear direction for now. We'll reach out if we need any clarification as we dig into the work.
Ben Goldman: Sounds good. I'm looking forward to seeing your results. Good luck with the audit, team.
Current Audit Context
This is the third year the FGCU-Accounting CPA firm has been engaged to audit Gabriela Aguiar LLC. The previous two audits resulted in unqualified opinions, but some control deficiencies in the accounts payable system were noted.
The current audit is particularly crucial as the Company is:
- Seeking additional financing for its Caribbean expansion
- Facing increased scrutiny from environmental regulators
- Dealing with a recent change in the CFO position Specific Areas of Concern for Liabilities Testing:
- Completeness and accuracy of accounts payable, given the previous control deficiencies
- Proper classification and disclosure of long-term debt covenants
- Accurate recording of lease liabilities, especially with the new Miami office
- Potential unrecorded liabilities related to environmental compliance
- The appropriate cut-off for liabilities pertaining to yacht manufacturing in progress
Instructions:
- Read all memos from your manager and the client, then read the steps in the audit program for liabilities found on Work Paper F-0 (Excel Sheet labeled F-0 Liabilities Program) and familiarize yourself with work papers. Complete all the steps on the audit program. Be sure to document your work using the designated tick marks. The tick mark legend is located at the bottom of each work paper. When you are finished with each workpaper, enter your initials in the box in the top right.
Case Tasks:
- Ethical Considerations: Consider the ethical implications of setting materiality levels and how it affects the audit process. Consider the AICPA Code of Professional Conduct and its relevance to this
- Legal Exposure: Consider the potential legal risks auditors face when testing liabilities, especially if material misstatements are not
- Risk Assessment: Consider the risks of material misstatement in the acquisition and expenditure cycle, focusing on
- Materiality Calculation: Using the provided trial balance, calculate the overall materiality level for the audit. Explain your reasoning and
- Liabilities Lead Schedule: Create a liabilities lead schedule based on the trial balance information.
- Audit Procedures: Perform all audit procedures in the audit program (F-0) for testing liabilities. Evaluate the findings of these tests and propose adjusting entries as appropriate
- Conclusion and Communication: Draft an email to the audit manager, Ben Goldman, summarizing your conclusion on liabilities testing. Include:
- Key findings
- Any identified misstatements or areas of concern
- Recommendation for further action (if necessary)
- Impact on the overall audit opinion
Additional Considerations:
- Focus on external liabilities in your analysis and testing
- Consider the specific risks that might be present in the Fort Myers area or for a company of this size and
- Address how the composition of the Board of Directors might influence your audit approach or risk
F-2 Debt Confirmations
Confirmation documents were received from Confirmation.com, a bank confirmation clearinghouse. Received on 01/22; additionally received confirmations for cash, documented in the audit for cash.
Attached Files
Trial Balance -Workpaper Template.xlsx
Gabriela Aguiar LLC Board of Directors Meeting Minutes
June 15, 2024 (M-id-Year Meeting)
Present: Gabriela Aguiar (CEO), Kevin Arce, Elie Bassil, John Blasi, Connor Cizek, Stephanie
Clemente, Colby Collins, Chestina Conduah
1. Call to Order The meeting was called to order at 10:00 AM by Gabriela Aguiar, CEO.
2. Approval of Previous Minutes The minutes of the previous meeting were approved
unanimously.
3. Financial Update a. CFO presented Q2 financial results, noting a 15% increase in revenue
compared to the same period last year. b. Discussion of the ongoing impact of last year's
hurricane on operations and sales.
o Sales in the affected region are down by 20% but showing signs of recovery.
o The insurance claim process is ongoing, with the potential for litigation discussed.
4. Legal Update a. General Counsel provided an update on the insurance claim dispute.
o The insurance company has denied full coverage, citing policy limitations.
o The Board authorized the pursuit of legal action if necessary. b. Discussion of
potential legal fees:
o Estimated $2-3 million in legal fees if litigation proceeds.
o The Board approved a budget of up to $3.5 million for legal expenses related to
this matter.
5. Expansion Plans a. Proposal to expand production capacity in response to increasing
demand. b. The Board approved exploring options for additional manufacturing space.
6. Other Business: None.
7. Adjournment The meeting was adjourned at 12:30 PM.
Gabriela Aguiar LLC Board of Directors Meeting Minutes
December 20, 2024 (Year-End Meeting)
Present: Gabriela Aguiar (CEO), Kevin Arce, Elie Bassil, John Blasi, Connor Cizek, Stephanie
Clemente, Colby Collins, Chestina Conduah
1. Call to Order The meeting was called to order at 9:30 AM by Gabriela Aguiar, CEO.
2. Approval of Previous Minutes The minutes of the previous meeting were approved
unanimously.
3. Financial Review a. CFO presented preliminary year-end financial results.
o Annual revenue is projected to be up 10% despite the hurricane's impact.
o Profit margins are slightly down due to increased costs and legal expenses.
o Discussion of 2025 budget and financial projections.
4. Hurricane Impact and Insurance Litigation Update a. General Counsel provided an update
on the insurance litigation.
o A case was filed against the insurance company for breach of contract.
o Legal fees to date: $2.8 million, expected to increase in 2025. b. The Board
discussed the impact on cash flow and authorized a new line of credit.
o The Approved new line of credit for $44 million, effective January 7, 2025.
5. Debt Restructuring a. CFO presented a plan to consolidate existing debt.
o Proposal to take out a new loan of $15 million and roll the existing $12 million
line of credit into it.
o The Board approved the plan to be effective January 2, 2025.
6. Executive Compensation and Bonuses: Compensation Committee presented
recommendations for executive bonuses. The Board approved the following bonuses for
themselves:
o CEO (Gabriela Aguiar): $500,000
o Other Board Members: $150,000 each
o Discussion on linking future bonuses more closely to company performance and
resolution of the insurance litigation.
7. 2025 Strategic Planning
o a. Discussion of expansion plans and potential new product lines.
o b. The Board approved the budget for R&D in eco-friendly yacht technologies.
8. Other Business a. Brief discussion on potential capital leases for new equipment.
o The decision was made to continue with the current policy of not using capital
leases.
9. Adjournment The meeting was adjourned at 1:00 PM.
,
A1- Trial Balance-Audited
| Gabriela Aguiar LLC | DACPA | |||||
| Audited Trial Balance as of December 31, 2024 | A-1 | |||||
| (All figures in thousands of USD) | ||||||
| Account ID | Account Description | Debit (USD 000s) | Credit (USD 000s) | Single Column format | ||
| 10500 | Cash on Hand | 375 | – 0 | 375 | ||
| 10600 | Regular Checking Account | 21,000 | – 0 | 21,000 | ||
| 10700 | Payroll Checking Account | 1,125 | – 0 | 1,125 | ||
| 10800 | Savings Account | 750 | – 0 | 750 | ||
| 10900 | Accounts Receivable | 21,000 | – 0 | 21,000 | ||
| 11000 | Allowance for Doubtful Accounts | – 0 | 1,050 | (1,050) | ||
| 11100 | Inventory – Spotlight | 33,750 | – 0 | 33,750 | ||
| 11200 | Reserve for Inventory Obsolescence | – 0 | 1,500 | (1,500) | ||
| 11300 | Prepaid Insurance | 900 | – 0 | 900 | ||
| 11400 | Prepaid Rent | 600 | – 0 | 600 | ||
| 11500 | Office Supplies | 375 | – 0 | 375 | ||
| 11600 | Notes Receivable-Current | 1,500 | – 0 | 1,500 | ||
| 11700 | Other Current Assets | 375 | – 0 | 375 | ||
| 15000 | Land | 15,000 | – 0 | 15,000 | ||
| 15200 | Buildings and Land Improvements | 60,000 | – 0 | 60,000 | ||
| 15400 | Machinery, Equipment, Office Furniture | 60,000 | – 0 | 60,000 | ||
| 15600 | Accumulated Depreciation | – 0 | 33,750 | (33,750) | ||
| 15800 | Investments | 7,500 | – 0 | 7,500 | ||
| 16000 | Other Noncurrent Assets | 33,075 | – 0 | 33,075 | ||
| 20000 | Deferred Tax Assets (Liabilities) | – 0 | 6,000 | (6,000) | ||
| 20200 | Accounts Payable | – 0 | 19,200 | (19,200) | ||
| 20400 | Sales Tax Payable | – 0 | 600 | (600) | ||
| 20600 | Income Tax Payable | – 0 | 900 | (900) | ||
| 20800 | Wages Payable | – 0 | 1,125 | (1,125) | ||
| 21000 | FICA Employee Withholding | – 0 | 188 | (188) | ||
| 21200 | Medicare Withholding | – 0 | 45 | (45) | ||
| 21400 | Federal Payroll Taxes Payable | – 0 | 225 | (225) | ||
| 21600 | FUTA Tax Payable | – 0 | 15 | (15) | ||
| 21800 | State Payroll Taxes Payable | – 0 | 75 | (75) | ||
| 22000 | SUTA Tax Payable | – 0 | 23 | (23) | ||
| 22200 | FICA Employer Withholding | – 0 | 188 | (188) | ||
| 22400 | Medicare Employer Withholding | – 0 | 45 | (45) | ||
| 22600 | Dividend Payable | – 0 | 375 | (375) | ||
| 22800 | Interest Payable | – 0 | 473 | (473) | ||
| 23000 | Line of Credit | – 0 | 12,000 | (12,000) | ||
| 23200 | Current Portion Long-Term Debt | – 0 | 3,750 | (3,750) | ||
| 23400 | Other Current Liabilities | – 0 | 750 | (750) | ||
| 25000 | Notes Payable-Noncurrent | – 0 | 84,000 | (84,000) | ||
| 26000 | Common Stock | – 0 | 37,500 | (37,500) | ||
| 27000 | Paid-in Capital | – 0 | 7,500 | (7,500) | ||
| 28000 | Retained Earnings | – 0 | 28,500 | (28,500) | ||
| 40000 | Sales | – 0 | 187,500 | (187,500) | ||
| 40500 | Sales Returns | 1,500 | – 0 | 1,500 | ||
| 41000 | Warranty Expense | 1,125 | – 0 | 1,125 | ||
| 41500 | Income from Investments | – 0 | 600 | (600) | ||
| 42000 | Interest Income | – 0 | 150 | (150) | ||
| 45000 | Cost of Goods Sold | 112,500 | – 0 | 112,500 | ||
| 50000 | Freight | 2,250 | – 0 | 2,250 | ||
| 50500 | Advertising Expense | 3,750 | – 0 | 3,750 | ||
| 51000 | Auto Expenses | 375 | – 0 | 375 | ||
| 51500 | Research and Development | 6,000 | – 0 | 6,000 | ||
| 52000 | Depreciation Expense | 5,250 | – 0 | 5,250 | ||
| 52500 | Warehouse Salaries | 4,500 | – 0 | 4,500 | ||
| 53000 | Property Tax Expense | 900 | – 0 | 900 | ||
| 53500 | Legal and Professional Expense | 4,575 | – 0 | 4,575 | ||
| 54000 | Bad Debt Expense | 750 | – 0 | 750 | ||
| 54500 | Insurance Expense | 1,500 | – 0 | 1,500 | ||
| 55000 | Maintenance Expense | 1,125 | – 0 | 1,125 | ||
| 55500 | Utilities | 1,350 | – 0 | 1,350 | ||
| 56000 | Phone | 300 | – 0 | 300 | ||
| 56500 | Postal | 75 | – 0 | 75 | ||
| 57000 | Miscellaneous Office Expense | 375 | – 0 | 375 | ||
| 60000 | Payroll Tax Expense | 1,500 | – 0 | 1,500 | ||
| 60500 | Pension/Profit-Sharing Plan Expense | 1,125 | – 0 | 1,125 | ||
| 61000 | Rent or Lease Expense | 2,250 | – 0 | 2,250 | ||
| 61500 | Administrative Wages Expense | 9,000 | – 0 | 9,000 | ||
| 62000 | Interest Expense | 3,750 | – 0 | 3,750 | ||
| 70000 | Income Tax Expense – Federal | 3,750 | – 0 | 3,750 | ||
| 70500 | Income Tax Expense – State | 750 | – 0 | 750 | ||
| 80000 | Loss on Legal Settlement | 375 | – 0 | 375 | ||
| Totals | 428,025 | 428,025 | – 0 | |||
A-2 PBC 2025 Trial Balance
| Gabriela Aguiar LLC | DACPA | ||||||
| Trial Balance as of December 31, 2025 | A-2 | ||||||
| (All figures in thousands of USD) | |||||||
| Account ID | Account Description | Debit (USD 000s) | Credit (USD 000s) | Single Column format | |||
| 10500 | Cash on Hand | 500 | 500 | ||||
| 10600 | Regular Checking Account | 12,000 | 12,000 | ||||
| 10700 | Payroll Checking Account | 1,500 | 1,500 | ||||
| 10800 | Savings Account | 1,000 | 1,000 | ||||
| 10900 | Accounts Receivable | 16,000 | 16,000 | ||||
| 11000 | Allowance for Doubtful Accounts | 1,400 | (1,400) | ||||
| 11100 | Inventory – Spotlight | 45,000 | 45,000 | ||||
| 11200 | Reserve for Inventory Obsolescence | 2,000 | (2,000) | ||||
| 11300 | Prepaid Insurance | 1,200 | 1,200 | ||||
| 11400 | Prepaid Rent | 800 | 800 | ||||
| 11500 | Office Supplies | 500 | 500 | ||||
| 11600 | Notes Receivable-Current | 2,000 | 2,000 | ||||
| 11700 | Other Current Assets | 500 | 500 | ||||
| 15000 | Land | 20,000 | 20,000 | ||||
| 15200 | Buildings and Land Improvements | 80,000 | 80,000 | ||||
| 15400 | Machinery, Equipment, Office Furniture | 80,000 | 80,000 | ||||
| 15600 | Accumulated Depreciation | 45,000 | (45,000) | ||||
| 15800 | Investments | 10,000 | 10,000 | ||||
| 16000 | Other Noncurrent Assets | 32,700 | 32,700 | ||||
| 20000 | Deferred Tax Assets (Liabilities) | 8,000 | (8,000) | ||||
| 20200 | Accounts Payable | 22,000 | (22,000) | ||||
| 20400 | Sales Tax Payable | 800 | (800) | ||||
| 20600 | Income Tax Payable | 1,200 | (1,200) | ||||
| 20800 | Wages Payable | 1,500 | (1,500) | ||||
| 21000 | FICA Employee Withholding | 250 | (250) | ||||
| 21200 | Medicare Withholding | 60 | (60) | ||||
| 21400 | Federal Payroll Taxes Payable | 300 | (300) | ||||
| 21600 | FUTA Tax Payable | 20 | (20) | ||||
| 21800 | State Payroll Taxes Payable | 100 | (100) | ||||
| 22000 | SUTA Tax Payable | 30 | (30) | ||||
| 22200 | FICA Employer Withholding | 250 | (250) | ||||
| 22400 | Medicare Employer Withholding | 60 | (60) | ||||
| 22600 | Dividend Payable | 500 | (500) | ||||
| 22800 | Interest Payable | 630 | (630) | ||||
| 23200 | Current Portion Long-Term Debt | 5,000 | (5,000) | ||||
| 23400 | Other Current Liabilities | 1,000 | (1,000) | ||||
| 25000 | Notes Payable-Noncurrent | 85,000 | (85,000) | ||||
| 26000 | Common Stock | 50,000 | (50,000) | ||||
| 27000 | Paid-in Capital | 10,000 | (10,000) | ||||
| 28000 | Retained Earnings | 41,600 | (41,600) | ||||
| 40000 | Sales | 250,000 | (250,000) | ||||
| 40500 | Sales Returns | 2,000 | 2,000 | ||||
| 41000 | Warranty Expense | 1,500 | 1,500 | ||||
| 41500 | Income from Investments | 800 | (800) | ||||
| 42000 | Interest Income | 200 | (200) | ||||
| 45000 | Cost of Goods Sold | 150,000 | 150,000 | ||||
| 50000 | Freight | 3,000 | 3,000 | ||||
| 50500 | Advertising Expense | 5,000 | 5,000 | ||||
| 51000 | Auto Expenses | 500 | 500 | ||||
| 51500 | Research and Development | 8,000 | 8,000 | ||||
| 52000 | Depreciation Expense | 7,000 | 7,000 | ||||
| 52500 | Warehouse Salaries | 6,000 | 6,000 | ||||
| 53000 | Property Tax Expense | 1,200 | 1,200 | ||||
| 53500 | Legal and Professional Expense | 2,500 | 2,500 | ||||
| 54000 | Bad Debt Expense | 1,000 | 1,000 | ||||
| 54500 | Insurance Expense | 2,000 | 2,000 | ||||
| 55000 | Maintenance Expense | 1,500 | 1,500 | ||||
| 55500 | Utilities | 1,800 | 1,800 | ||||
| 56000 | Phone | 400 | 400 | ||||
| 56500 | Postal | 100 | 100 | ||||
| 57000 | Miscellaneous Office Expense | 500 | 500 | ||||
| 60000 | Payroll Tax Expense | 2,000 | 2,000 | ||||
| 60500 | Pension/Profit-Sharing Plan Expense | 1,500 | 1,500 | ||||
| 61000 | Rent or Lease Expense | 3,000 | 3,000 | ||||
| 61500 | Administrative Wages Expense | 12,000 | 12,000 | ||||
| 62000 | Interest Expense | 5,000 | 5,000 | ||||
| 70000 | Income Tax Expense – Federal | 5,000 | 5,000 | ||||
| 70500 | Income Tax Expense – State | 1,000 | 1,000 | ||||
| 80000 | Loss on Legal Settlement | 500 | 500 | ||||
| Totals | 527,700 | 527,700 | – 0 | ||||
A-4 MaterialityMemo
| Gabriela Aguiar LLC | A-4 | ||||
| AUDIT MATERIALITY | Prepared by | ||||
| (Required for all engagements) | Reviewed by | ||||
| CLIENT: | Gabriela Aguiar LLC | ||||
| PERIOD ENDED: | December 31, 2025 | ||||
| MATERIALITY CALCULATION | |||||
| Only if the current year net income (loss) (or other measure) is significantly different from the entity’s historical results would 2-year averaging to obtain normalized net income (loss) (or other measure) be appropriate. | |||||
| PROFIT ORIENTED ENTITIES | Current Year | Prior Year | |||
| Net income (loss) | |||||
| Plus (minus) unusual, non-recurring revenues and expenses, and extraordinary items. | – 0 | – 0 | |||
| ADJUSTED NET INCOME (LOSS) | – 0 | – 0 | |||
| Adjusted net income (loss) multiplied by: | |||||
| 5.00% | – 0 | – 0 | |||
| Current Year | |||||
| TOTAL ASSETS | |||||
| Total assets multiplied by: | |||||
| 1.00% | – 0 | – 0 | |||
| Current Year | |||||
| TOTAL REVENUES | |||||
| Plus (minus) unusual, non-recurring revenues | – 0 | ||||
| ADJUSTED REVENUES | – 0 | – 0 | |||
| Total adjusted revenues multiplied by: | |||||
| 1.00% | – 0 | – 0 | |||
| JUSTIFICATION OF PLANNING MATERIALITY | |||||
| 1. Financial data source (i.e. actual, budget, projection): | Year end trial balance, actual data obtained from client. | ||||
| 2. Basis (i.e. normalized net income, revenue, total assets, other): | Adjusted net income | ||||
| Justification: | USE THIS BOX TO DOCUMENT AND JUSTIFY WHICH BASIS YOU'VE SELECTED | ||||
| 3. Percentage of financial data source used: | Standard 5% used. | ||||
| 4. Amount selected (planning materiality) | – 0 | ||||
| 5. Prior year’s final materiality | – 0 | Being that GA is a new client and we were not provided with materiality amounts from the predecessor auditor, we assume that planning materiality is 5% of net income from 2024. | |||
| 6. Performance materiality/Tolerable misstatement (75% of planning materiality) | 0 | ||||
| 7. Listing scope (amount threshold for suggested adjustments) (using 5% to 10% of planning materiality based on expected level of adjustments is usually appropriate) | |||||
| 5% | 0 | ||||
| Engagement Partner | A. Anderson | ||||
| Engagement Quality Control Reviewer | Ernest Olds | ||||
F-0 Liabilities Program
| Gabriela Aguiar LLC | F-0 | ||||
| AUDIT PLAN—Liabilities | |||||
| FYE 12/31/2025 | |||||
| Materiality for Testing = $ (Listing Scope) | Workpaper Reference | Related Assertion (s) | Performed by | Comments | |
| 1 | Ensure that the current year's liability amounts on the lead schedule reconcile with the trial balance. | ||||
| 2 | Ensure alignment of prior year amounts with the prior year audited financial statements. | ||||
| 3 | Foot the liabilities lead schedule | ||||
| 4 | Request for Debt Confirmations (standard bank confirmation). | ||||
| a | Review the bank confirmation for loans and collateral. | ||||
| 5 | Request for Listing of Year-End Accounts Payable | ||||
| 6 | Calculate and reconcile aged accounts payable schedule. | ||||
| 7 | Reconciliation of Accounts Payable Aging Schedule with Lead Sheet and Trial Balance. | ||||
| 8 | Review the aged accounts payable schedule for unusual or related party items. | ||||
| 9 | Examine open vouchers, vendors' invoices, and statements received to search for unrecorded liabilities after the year-end period. Also, review cash payments made during this time for any potential unrecorded liabilities. | ||||
| 10 | Review the terms that justify classifying payables as long-term instead of current. | ||||
| 11 | Inquire of management about any capital lease agreements entered into during the year. | ||||
| 12 | Review agreements/contracts for leases to ensure that they are appropriately classified. | ||||
| 13 | Confirm lease amounts match the lead sheet and trial balance. | ||||
| 14 | Calculate and reconcile the long-term debt amortization table. | ||||
| 15 | Reconcile the long-term debt to the lead sheet and trial balance. | ||||
| 16 | Review long-term debt agreements/contracts for future minimum required debt payments that should be disclosed. | ||||
| 17 | Debt contracts should be reviewed for restrictive debt covenants, which must be disclosed in the footnotes. | Presentation and Disclosure | PER DW – Still waiting on this. |
F-1 Liabilities Lead Sheet
| Gabriela Aguiar LLC | F-1 | |||||||||||
| Liabilities Lead Schedule | Prepared by | |||||||||||
| For Year Ended 12/31/2025 | Reviewed by | |||||||||||
| (Audited)-Balance | Unaudited-Balance | Adjustments | Audited | |||||||||
| Acct # | Account Title | 12/31/24 | 12/31/25 | AJE# | Dr | Cr | 12/31/25 | WP | ||||
| Accounts Payable | $0.00 | |||||||||||
| Line of Credit | $0.00 | |||||||||||
| Current Portion Long-Term Debt | $0.00 | |||||||||||
| Other Current Liabilities | $0.00 | |||||||||||
| Notes Payable-Noncurrent | $0.00 | |||||||||||
| $0.00 | $0.00 | $0.00 | ||||||||||
| Tickmark Legend | ||||||||||||
| F – Footed without exception | ||||||||||||
| M – Amount is considered immaterial, no further work necessary. | ||||||||||||
| TB – Agrees to Trial Balance without exception | ||||||||||||
| PY – Agrees to prior year audited financial statements without exception | ||||||||||||
| NOTES & PROPOSED JEs: | ||||||||||||
F-3 AP Aged Schedule
| Gabriela Aguiar LLC | F-3 | |||||||
| AP Aging Schedule | DACPA | |||||||
| For Year Ended 12/31/2025 | ||||||||
| Current | Past Due | |||||||
| Vendor | Outstanding Amt | <30 Days | 30-60 Days | 60-90 Days | >90 Days | |||
| Justice & Associates, LLC | 4,400,000 | 2,200,000 | 1,100,000 | 1,100,000 | – 0 | |||
| Yacht Components Inc. | 4,800,000 | 4,800,000 | – 0 | – 0 | – 0 | |||
| Marina Systems International | 3,800,000 | 1,650,000 | 1,025,000 | 1,025,000 | 1,025,000 | |||
| Gulf Coast Electronics | 2,200,000 | 2,200,000 | – 0 | – 0 | – 0 | |||
| Luxury Interiors Co. | 1,800,000 | 550,000 | 950,000 | 550,000 | – 0 | |||
| Nautical Engineering Services | 1,735,000 | 1,400,000 | – 0 | – 0 | – 0 | |||
| Caloosa Wellness Center | 1,100,000 | 750,000 | – 0 | – 0 | – 0 | |||
| Edison Legal Advisors | 600,000 | 600,000 | – 0 | – 0 | – 0 | |||
| Tech Coast Innovations | 550,000 | 275,000 | 275,000 | – 0 | – 0 | |||
| PowerPlus Battery Co. | 350,000 | 350,000 | – 0 | – 0 | – 0 | |||
| Cypress Auto Group | 250,000 | 250,000 | – 0 | – 0 | – 0 | |||
| Gulf Breeze Catering | 150,000 | 150,000 | – 0 | – 0 | – 0 | |||
| SWFL Communications | 75,000 | 75,000 | – 0 | – 0 | – 0 | |||
| Sunshine Office Solutions | 50,000 | 50,000 | – 0 | – 0 | – 0 | |||
| Signs Now! | 55,000 | 45,000 | – 0 | – 0 | – 0 | |||
| Box Depot | 45,000 | 15,000 | – 0 | – 0 | – 0 | |||
| Secure Shred Services | 40,000 | 15,000 | – 0 | – 0 | – 0 | |||
| 22,000,000 | 15,375,000 | 3,350,000 | 2,675,000 | 1,025,000 | ||||
| Tickmark Legend | ||||||||
| F – Footed without exception | ||||||||
| M – Amount is considered immaterial, no further work necessary. | ||||||||
| TB – Agrees to Trial Balance without exception | ||||||||
| PY – Agrees to prior year audited financial statements without exception | ||||||||
| Per the Legal confirmation at J-1 incurred legal fees as of 12/31 included 2,800,000 which had been incurred but not yet billed to Gabriela Aguiar LLC . | ||||||||
F-4 Cash Disbursements Journal
| Gabriela Aguiar LLC | F-4 | ||||||
| Cash Disbursements Journal (Jan 2026) | DACPA | ||||||
| For Year Ended 12/31/2025 | |||||||
| Check Number | Date of Check | Payee | Amount | Invoice Date | Reviewed -Notes | A, B or C | |
| 5433 | 1/10/26 | Coastal Tech Innovations | 8,355 | 12/26/25 | A comprehensive annual maintenance contract for computer hardware and networking equipment was secured for the year 2026. | ||
| 5434 | 1/10/26 | Everglades Fleet Management | 3,671 | 1/8/26 | Scheduled maintenance check-ups for a fleet of 5 automobiles were conducted on 1/9/2026. | ||
| 5435 | 1/10/26 | FGCU Tropical Event Planners | 8,585 | 12/30/25 | Catered Holiday party. | ||
| 5436 | 1/10/26 | Staples-All-Florida Office Solutions | 1,560 | 1/9/26 | Office supplies purchased 1/09/2026. | ||
| 5437 | 1/10/26 | Florida Power & Light | 19,020 | 1/5/26 | Utility bill electricity For December | ||
| 5438 | 1/10/26 | Bay Area Communications | 8,600 | 1/4/26 | December utility bill-Phone Services | ||
| 5439 | 1/10/26 | Kevin Arce | 7,538 | NA | Oil changes for a fleet of 8 automobiles were performed on 1/13/2026. | ||
| 5440 | 1/10/26 | Palm Packaging Supplies | 1,160 | 1/6/26 | Raw materials for packaging production were ordered on 1/7/2026. | ||
| 5441 | 1/10/26 | Horizon Marketing Agency | 10,525 | 1/2/26 | The goods were received on 1/7/2026 with bill of lading showing a 1/4/2026 shipping date and marked FOB, Shipping – Los Angeles. | ||
| 5442 | 1/10/26 | Gulf Power Parts Solutions | 10,543,611 | 12/26/25 | The receiving report was dated, Monday, 12/29/2025. However, due to unexpected maintenance issues, the truck was not able to deliver the goods until the following week. The AP clerk indicated that the receiving report was not processed until the next working day, and as a result, it was not included in the year-end accounts payable. | ||
| 5443 | 1/10/26 | Summit IT Services | 1,396 | 12/30/25 | Business cards, picked up 12/30/2025 | ||
| 5444 | 1/10/26 | Coastal Tech Innovations | 8,656 | 1/9/26 | Computer purchased 1/10/2026. | ||
| 5445 | 1/10/26 | Bright Sign Solutions | 6,243 | 12/30/25 | New logos on vehicles on 12/31/2025. | ||
| 5446 | 1/10/26 | Staples-All-Florida Office Solutions | 6,467 | 1/9/26 | Copy machine purchased 1/10/2026. | ||
| 5447 | 1/10/26 | Coastal Tech Innovations | 731 | 1/9/26 | Computer supplies picked up 1/10/2026. | ||
| Tickmark Legend | |||||||
| F – Footed without exception | |||||||
| M – Amount is considered immaterial, no further work necessary. | |||||||
| TB – Agrees to Trial Balance without exception | |||||||
| NOTES: | |||||||
| A – Correctly included on year end payables aging. | |||||||
| B – Correctly not included on year end payables aging. | |||||||
| C – Incorrectly not included on year end payables aging. | |||||||
| PROPOSED JEs: | |||||||
,
F-2.1 Debt Confirmation Report
08/13/2025
To: Manny Hernandez
Bank Name: ACG 6655 International Bank
Address: 1234 Global Finance Blvd, New York, NY 10001, USA
Contact: Manny Hernandez
Email: Hernandez2321@ACG_6655_Int.com
Phone: 222-235-1214
From: Gabriela Aguiar LLC
10052 Via FGCU Ct
Fort Myers, FL 33905
United States
Subject: Debt Confirmation Request for the Financial Year 2025
Dear Manny Hernandez,
As part of our annual audit process, we are conducting a confirmation of the outstanding debt as
of December 31, 2025. This confirmation is necessary to verify the accuracy of our financial
records and ensure the correctness of the balances reported in our statements.
Client's Statements
We have provided our accountants with the following information as of the close of business on
the Request Date. Please confirm the accuracy of the information by reviewing the balances in
the account(s) listed below. Although we did not conduct a comprehensive, detailed search of
your records, if additional information about other deposit and loan accounts comes to your
attention during this process, please include such information.
As of the close of business on the Request Date, our records indicate the following loan
balances:
Details of Outstanding Debt
Request ID
Status:
Loan/Account
Number
Outstanding
Balance
Interest Rate
(%) Maturity Date Currency
Collateral
Description
NP # 105208 15,000,000 7.45% January 1, 2026 USD Land-Fort
Myers
UIA-84252115
Completed
Please indicate any discrepancies or additional information in the space provided below:
Comments/Discrepancies:
(01/22/2026 12:46 PM) Manny Hernandez said – Balance as of 12/31/2025, due date revolving,
interest paid through 09/30/2025.
Confirmation
Please confirm the above information by signing and returning this document to us at your
earliest convenience. You may return the confirmation via email to
[email protected] or via postal mail to:
Audit Manager: Ben Goldman, CPA
FGCU-Accounting CPA firm
100542 FGCU Dr
Fort Myers, FL 33965, USA
If there are any questions or if further clarification is required, please do not hesitate to contact us
at 239-590-0001 or [email protected].
Thank you for your prompt attention to this matter.
Sincerely,
Devin Grundy Controller
Gabriela Aguiar LLC
10052 Via FGCU Ct
Fort Myers, FL 33905
United States
239-590-0001
Confirmation Acknowledgement
I hereby confirm that the information provided above is accurate and correct as of December 31,
2025.
Signature: _
X M a n n y H e r n a n d e z
B a n k M a n a g e r – L o a n D e p a r t m e n t
______________________________
Name: Manny Hernandez
Title: Bank Loan Manager
Date: 01/22/2026
Requested Information
Engagement Number: 2024665508
Audit Manager: Ben Goldman, CPA
FGCU-Accounting CPA Firm
100542 FGCU Dr
Fort Myers, FL 33965
United States
Follow-up Actions
Review Confirmation – Verify if ACG 6655 International Bank has acknowledged and confirmed
the debt information.
Reconcile Accounts – Compare the confirmed balances with the company's records.
Address Discrepancies – Investigate and resolve any discrepancies noted by the creditor.
F-2.2 Debt Confirmation Report
Client's Statement
We have provided to our accountants the following information as of the close of business on the
Request Date below regarding our deposit and loan balances. Please confirm the accuracy of the
information, noting any exceptions to the information provided. If the balances have been left
blank, please complete this form by furnishing the balance in the appropriate space below.
Although we did not conduct a comprehensive, detailed search of your records, during the
process of completing this confirmation, additional information about other deposit and loan
accounts you may have with us comes to your attention; please include such information below.
At the close of business on the Request Date below, our records indicated the deposit balances
below, and we were also directly liable to the financial institution for loans at the close of
business on the stated Request Date as indicated below.
† Ordinarily, balances are intentionally left blank if they are not available at the time the form is
prepared.
Client's Company Information
Engagement Number: 2024665508
Company Name: Gabriela Aguiar LLC
Address: 10052 Via FGCU Ct, Fort Myers, FL 33905, USA
Requestor Information
Company Name: FGCU-Accounting CPA Firm
Audit Manager: Ben Goldman, CPA
Address: 100542 FGCU Dr, Fort Myers, FL 33965, USA
Authorized Signers
Name: Devin Grundy
Job Title: Controller
Phone: 239-590-0001
Email: [email protected]
Responder Information
Bank Name: ACG 6655 International Bank
Address: 1234 Global Finance Blvd, New York, NY 10001, USA
Contact: Manny Hernandez
Email: Hernandez2321@ACG_6655_Int.com
Phone: 222-235-1214
Client's Account Information
Type/Form: Line of Credit
Account ID: NP # 105210
Account Name: LOC
Confirmation Request
Request ID
Status:
Loan/Account
Number
Outstanding
Balance Interest Rate (%) Maturity Date Currency Collateral Description
NP # 105210 52,550,000 6.45% January 1, 2028 USD Land-Fort Myers
UIA-84252115
Completed
Delivery Method: In-Network
Questions / Comments
(01/22/2025 10:46 AM) Manny Hernandez said – Balance as of 12/31/2025, due date revolving,
interest paid through 06/30/2025.
Description of collateral: Leased Yacht (50) with a Lien in Lee County
Responder Statements
The information presented is in agreement with our records. Although we have not conducted a
comprehensive, detailed search of our records, no other deposit or loan accounts have come to
our attention except as noted.
Confirmation Acknowledgement
I hereby confirm that the information provided above is accurate and correct as of December 31,
2025.
Signature: _
X M a n n y H e r n a n d e z
B a n k M a n a g e r – L o a n D e p a r t m e n t
______________________________
Name: Manny Hernandez
Title: Bank Loan Manager
Date: 01/22/2026
,
Page 1 of 3
D-4
FGCU National Bank
19800 LCOB Blvd
Fort Myers, FL 33917
United States
Account #:1804-17-5256-01
Gabriela Aguiar LLC
10052 Via FGCU Ct
Fort Myers, FL 33905
United States
Your Checking Account 1-1-2026 THRU 1-15-2026
Your Previous Balance 12,000,000.00
Additions 5 Deposits 15,597,022.90
3 Transfers from other
accounts 8,500,000.00
Deductions 55 Checks 13,586,529.84
3 Transfers to other accounts 11,365,369.20
Your Current Balance 11,145,123.86
Deposits and Other Additions
Date Amount Date Amount
1/3/2026 465,782.45 1/13/2026 8,113,204.54 1/5/2026 3,784,285.91 1/13/2026 1,252,500.00 1/6/2026 1,981,250.00
Transfers to Other Accounts
Date Amount Account
1/7/2026 6,300,000.00 604-03-739-8
1/13/2026 4,500,000.00 604-03-739-8
1/14/2026 565,369.20 604-29-016-3
Transfers from Other Accounts
Date Amount Account
1/10/2026 1,650,000.00 604-03-739-8
1/11/2026 1,500,000.00 604-03-739-8
Page 2 of 3
1/14/2026 5,350,000.00 604-03-739-8
Checks and Other Withdrawals
Check Date Amount
6000 1/3/2026 10,666.40
6001 1/3/2026 5,926.63
5996 1/3/2026 412,969.75
6005 1/4/2026 9,457.59
6012 1/4/2026 20,590.00
6011 1/5/2026 19,683.05
6013 1/5/2026 15,763.70
6016 1/5/2026 7,993.26
6029 1/5/2026 16,130.00
6026 1/5/2026 5,243.49
6007 1/6/2026 23,027.38
6024 1/6/2026 7,412.34
6031 1/6/2026 1,342.16
6033 1/6/2026 9,801.59
5999 1/6/2026 9,950.19
6003 1/6/2026 8,383.81
6004 1/7/2026 13,234.71
6017 1/7/2026 18,458.18
6018 1/7/2026 19,770.20
6020 1/7/2026 2,095.55
5997 1/10/2026 7,204.78
5998 1/10/2026 617.4525
6002 1/10/2026 10,592.14
6006 1/10/2026 4,263.06
6008 1/10/2026 9,556.12
6009 1/10/2026 741.4125
6015 1/10/2026 4,287.89
6019 1/10/2026 3,605.41
6021 1/10/2026 2,000,254.74
6022 1/10/2026 7,136.36
6023 1/10/2026 1,126.05
6027 1/10/2026 12,904.49
6035 1/10/2026 8,352.89
6010 1/12/2026 7,511.21
6014 1/12/2026 200,000.00
6025 1/12/2026 1,266.85
6030 1/12/2026 9,338.02
6028 1/12/2026 14,366.46
Page 3 of 3
6032 1/12/2026 13,377.14
6034 1/12/2026 2,566.30
5433 1/13/2026 8,355.00
5434 1/13/2026 3,671.00
5436 1/13/2026 1,560.00
5437 1/13/2026 19,020.00
5436 1/13/2026 6,891.16
5439 1/13/2026 7,538.00
5440 1/13/2026 1,160.00
6047 1/13/2026 6,924.96
5446 1/13/2026 6,467.00
5447 1/13/2026 731.00
5435 1/14/2026 8,585.00
5441 1/14/2026 10,543,611.00
5443 1/14/2026 1,396.00
5444 1/14/2026 8,656.00
6048 1/14/2026 4,994.99
Total 13,586,529.84
,
Title: Materiality and Liabilities Testing – Gabriela Aguiar LLC Audit Case
In this mini-case, you will audit and evaluate documents, such as debt confirmations, vendor
invoices, etc., in the audit of all of Gabriela Aguiar LLC's liability accounts. To expedite the
audit process, your audit teammate has already picked up the PBC schedules and scanned and
labeled them in the binder for you.
Case Background
FGCU-Accounting CPA firm has been engaged to audit Gabriela Aguiar LLC, a company based
in the Fort Myers area. The audit team is led by partner Isabella Dewitt, with Ben Goldman as
the audit manager. You are a senior auditor assigned to the liabilities testing portion of the audit.
Company Information:
Gabriela Aguiar LLC
CEO: Gabriela Aguiar
Board of Directors: Kevin Arce, Elie Bassil, John Blasi, Connor Cizek, Stephanie Clemente,
Colby Collins, Chestina Conduah
Company Background
Gabriela Aguiar LLC is a publicly traded company based in Fort Myers, Florida, specializing in
luxury yacht manufacturing and leasing. Founded in 2010 by Gabriela Aguiar, the Company has
grown rapidly to become a significant player in the high-end marine industry.
Key Business Details:
Primary Business: Manufacturing and leasing luxury yachts
Secondary Revenue Streams: Yacht maintenance services and marine equipment sales
Market Position: Mid-sized Company with a strong presence in the southeastern U.S
Recent Development: Expanding operations to the Caribbean market
Public Trading: Listed on NASDAQ under the ticker symbol GAYL
Company History and Current Situation
Gabriela Aguiar, a former naval architect, founded the Company with a vision to create
customizable, eco-friendly luxury yachts. The Company's innovative designs and commitment to
sustainability quickly gained attention in the industry. In 2018, Gabriela Aguiar LLC went public
to fund its expansion plans. The Company has since opened a new manufacturing facility in Fort
Myers and established a leasing office in Miami.
Recent challenges include:
1. Supply chain disruptions affecting the timely delivery of specialized materials
2. Increased competition in the luxury yacht market
3. Regulatory changes related to environmental standards in yacht manufacturing
Financial Snapshot:
Annual Revenue: Approximately $150 million
Total Assets: Around $300 million
Significant Liabilities: Long-term debt for manufacturing facilities, accounts payable to
suppliers, lease liabilities for Miami office
Office Meeting with Your Audit Manager
Ben Goldman: Good morning, team. I hope you're all doing well. How's the progress on last
month's assignment?
Team Leader: Good morning, Ben. We've just concluded the assignment, and we're working on
submitting the initial report for your review by the end of the working day today.
Ben Goldman: Excellent; I'll be looking forward to receiving that report. Now, let's discuss your
next assignment: the Gabriela Aguiar LLC Audit, specifically the liabilities testing. Given the
company's recent expansion and the importance of this audit, we need to pay extra attention to
this area.
Team Leader: Understood. What specific areas should we focus on?
Ben Goldman: I'm glad you asked. I've done a quick scan of the trial balance, and I have some
concerns about accounts payable. I need you to investigate a couple of things there.
Team Leader: What should we be looking for in accounts payable?
Ben Goldman: First, look for any AP that should have been written off according to the
company's accrual policy. Second, search for unrecorded accounts payable. I have a hunch there
might be some liabilities that haven't been reflected in the company's books yet.
Team Leader: Got it. We'll thoroughly review the AP. Anything else we should be aware of?
Ben Goldman: Yes, there's an issue with legal fees. I just heard from Gabriela Aguiar, LLC's
attorney. They're preparing the legal confirmation for us, but they mentioned $2.8 million in
legal fees related to hurricane damage litigation that haven't been billed yet for 2025 work.
Team Leader: That's a significant amount. How should we approach this?
Ben Goldman: We need an interim report on this to ensure we're comfortable that liabilities are
complete based on your search for unrecorded liabilities.
Team Leader: Understood. We'll look into that and include it in our report. Any other areas of
concern?
Ben Goldman: Yes, there are some developments with notes payable and their line of credit. I
spoke with the controller about the new debt. They took out a new loan of $15 million and rolled
the $12 million from the line of credit into it, effective January 2, 2025. There's something about
this in the Board of Directors' minutes, so make sure to review those.
Team Leader: We'll definitely review the minutes and follow up on that new debt arrangement.
Ben Goldman: Also, they started a new line of credit for $44 million on January 7, 2025.
Team Leader: That's a substantial new line of credit. We'll look into the details as well.
Ben Goldman: Good. Now, regarding leases, the controller assured me they don't have any
capital leases. I've looked over the assets, and I'm inclined to agree. You don't need to spend too
much time looking for these, but keep an eye out, just in case.
Team Leader: Noted. We'll do a quick check on leases but focus more on the other areas you've
mentioned.
Ben Goldman: That's right. Oh, and one more thing: payroll-related liabilities are being tested
with payroll, so you don't need to worry about them while you are testing.
Team Leader: Understood. Is there anything specific you'd like to see in our deliverables?
Ben Goldman: Yes, I'd like you to prepare a comprehensive audit plan for liabilities, including
your materiality calculations and planned procedures. I also want to see a liabilities lead
schedule, an AP aging schedule, and your initial findings on the potential issues I've mentioned.
Team Leader: We'll make sure to include all of those in our work.
Ben Goldman: Great. Once you've completed your testing, draft an interim report summarizing
your findings, mainly focusing on any material issues or discrepancies you uncover.
Team Leader: Will do. We'll keep you updated on our progress and let you know if we
encounter any significant issues.
Ben Goldman: Perfect. Do you have any questions or need any additional information to
proceed?
Team Leader: I think we have a clear direction for now. We'll reach out if we need any
clarification as we dig into the work.
Ben Goldman: Sounds good. I'm looking forward to seeing your results. Good luck with the
audit, team.
Current Audit Context
This is the third year the FGCU-Accounting CPA firm has been engaged to audit Gabriela
Aguiar LLC. The previous two audits resulted in unqualified opinions, but some control
deficiencies in the accounts payable system were noted.
The current audit is particularly crucial as the Company is:
1. Seeking additional financing for its Caribbean expansion
2. Facing increased scrutiny from environmental regulators
3. Dealing with a recent change in the CFO position
Specific Areas of Concern for Liabilities Testing:
1. Completeness and accuracy of accounts payable, given the previous control deficiencies
2. Proper classification and disclosure of long-term debt covenants
3. Accurate recording of lease liabilities, especially with the new Miami office
4. Potential unrecorded liabilities related to environmental compliance
5. The appropriate cut-off for liabilities pertaining to yacht manufacturing in progress Instructions:
Read all memos from your manager and the client, then read the steps in the audit program for
liabilities found on Work Paper F-0 (Excel Sheet labeled F-0 Liabilities Program) and
familiarize yourself with work papers. Complete all the steps on the audit program. Be sure to
document your work using the designated tick marks. The tick mark legend is located at the
bottom of each work paper. When you are finished with each workpaper, enter your initials in
the box in the top right.
Case Tasks:
1. Ethical Considerations: Consider the ethical implications of setting materiality levels
and how it affects the audit process. Consider the AICPA Code of Professional Conduct
and its relevance to this case.
2. Legal Exposure: Consider the potential legal risks auditors face when testing
liabilities, especially if material misstatements are not detected.
3. Risk Assessment: Consider the risks of material misstatement in the
acquisition and expenditure cycle, focusing on liabilities.
4. Materiality Calculation: Using the provided trial balance, calculate the overall materiality
level for the audit. Explain your reasoning and methodology.
5. Liabilities Lead Schedule: Create a liabilities lead schedule based on the trial balance
information.
6. Audit Procedures: Perform all audit procedures in the audit program (F-0) for
testing liabilities. Evaluate the findings of these tests and propose adjusting entries
as appropriate.
7. Conclusion and Communication: Draft an email to the audit manager, Ben Goldman,
summarizing your conclusion on liabilities testing. Include:
1. Key findings 2. Any identified misstatements or areas of concern 3. Recommendation for further action (if necessary) 4. Impact on the overall audit opinion
Additional Considerations:
Focus on external liabilities in your analysis and testing procedures.
Consider the specific risks that might be present in the Fort Myers area or for a company
of this size and type.
Address how the composition of the Board of Directors might influence your audit
approach or risk assessment.
F-2 Debt Confirmations
Confirmation documents were received from Confirmation.com, a bank confirmation
clearinghouse. Received on 01/22; additionally received confirmations for cash, documented in
the audit for cash.
