ACCOUNTNG-Simply Soups Inc.: A Teaching Case Designed to Integrate the Electronic Cash

Simply Soups Inc.: A Teaching Case Designed to Integrate the
Electronic Cash Confirmation Process into the Auditing Curriculum
ABSTRACT: Simply Soups Inc., a producer of organic canned soups, has hired your firm,
Putnam and Jacobs LLP, to perform a financial statement audit for the year ended December 31,
2013. Using the PCAOB’s proposed standard on confirmations and electronic confirmations, you
are to complete the testing of the cash balance reported by Simply Soups Inc. at year-end. Today,
a majority of large banks require auditors to use electronic cash confirmation requests and, as a
result, mostly all large audit firms use them. When using electronic confirmation requests, audit
firms typically rely on a third-party intermediary to provide a secure technological platform to
transmit information between the bank and the auditor as well as to validate the authenticity of
the respondent. In requiring you to electronically confirm cash balances using a third-party
intermediary, this case provides an opportunity to improve your understanding of current audit
practice, strengthen your technical knowledge of applicable standards, and develop the
professional judgment skills necessary to appropriately evaluate and document the
persuasiveness of audit evidence.
Keywords: Electronic cash confirmations, substantive tests of details, cash, SOC reporting
Forthcoming in Issues in Accounting Education

Case Requirements
Assume that you are a new audit associate assigned to Simply Soups Inc. The
engagement manager has given you the responsibility of confirming the cash balances of Simply
Soups Inc.’s bank accounts using electronic confirmations. Putnam and Jacobs LLP relies on
edu.Confirmation.com to process confirmations. Confirmation.com, which built
edu.Confirmation.com, is a web-based audit confirmation solution that is relied on by over
10,000 accounting firms in more than 100 countries, bringing efficiency and security to the
confirmation process for cash, debt, accounts receivable and more than 40 other confirmation
types. To complete the testing of cash balances by using electronic confirmations, you are now
required to perform a series of audit procedures and conclude on the audit step entitled “Confirm
Cash Balances”. Exhibit 4, below, provides key information that you will need to confirm each
of the Company’s six bank accounts.
[Insert Exhibit 4]
Ultimately, to conclude on the audit step entitled “Confirm Cash Balances”, you need to
evaluate whether the results of the external confirmation process, together with the results from
any other audit procedures performed, provide sufficient appropriate evidence regarding the
financial statement assertions being audited (AICPA 1992). Your deliverables will consist of
four parts:
1. Audit Procedure Checklist (Appendix A) - Each step on the Audit Procedure
Checklist should be completed, dated, and initialed.
2. Confirmation Testing Workpaper and Memo (Appendix B) - The Confirmation
Testing Workpaper is where you, as a member of the audit team, are required to
sufficiently document the evidence that was gathered and evaluated while completing

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the audit procedures. In completing the workpaper, consider the appropriateness and
persuasiveness of the evidence gathered by referring to excerpts from the professional
standards included in the Support Materials, which can be downloaded from
edu.Confirmation.com. Overall, your final workpaper and memo should demonstrate
an understanding of the key procedures performed and the applicable professional
standards including:
Steps to be documented in the final workpaper
a. The initial confirmation of Simply Soups Inc.’s bank accounts and
evaluation of responses received;
b. The reconfirmation (where necessary) of Simply Soups Inc.’s bank
accounts and evaluation of responses received;
c. Any additional steps or risks that might warrant further consideration based
on the case materials provided.
Steps to be documented in the final memo
d. The purpose for sending out positive confirmations;
e. The reasons for using a third-party intermediary like
edu.Confirmation.com;
f. The risks involved in using a third-party intermediary;
g. The steps taken to gain comfort over such risks, including the steps taken
to gain comfort over the third-party intermediary’s system of internal
control related to the electronic confirmation platform; and
h. Whether the overall work performed provides the basis to reach a
conclusion with respect to the relevant financial statement assertions tested

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A summary of confirmation results, including a description of any
issues or instances of risk that cam up during your confirmation
testing.
for the cash balance. Importantly, the work performed must be
documented in a manner that would allow an experienced auditor with no
experience with the client to know the exact steps that were performed.
3. The Confirmation Log – To provide further support of your work, you will need to
export the confirmation log from edu.Confirmation.com and include it with the
workpaper in the case submission.
4. Confirmations Received – Along with the confirmation log, your final deliverable
should include a print out of the confirmations that were received directly from the
edu.Confirmation.com platform. This will allow your manager to review your work
and understand your conclusions.
NOTE: It is important to highlight that, because confirmation responses may require follow up or
two
even reconfirmation, you must begin this case at least four days before the assignment due date

in order to be in a position to complete the requirements on time.

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EXHIBIT 1
Trial Balance
Work Paper Reference: 100-4
Prepared By W. Downey (Intern)
1/7/2014
6:40 PM
1/7/2014

PBC

Simply Soups Inc.
177 Washington Lane, Cherry Hill, NJ 08034
609-555-5555
Trial Balance
As of December 31, 2013
Debit
Cash - Acct. 10000
Fifth Federal
Sparkasse-Frankfurt
American NorthWest Bank
BNY Federal
Tenth National Bank
Bank of Citizens

478,921.54 A
235,087.29
144,019.83
477,832.15
301,015.18
348,701.60
1,985,577.59

Accounts Receivable - Acct. 11000
Tick Legend
A
PBC

The sum of this balance was agreed into the Balance
Sheet without exception, W. Downey (Intern)
Prepared by client

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Credit

EXHIBIT 2
Cash Lead Sheet
Work Paper Reference: 100-1
Prepared By W. Downey (Intern)
1/8/2014
Cash Lead Sheet
Simply Soups Inc.
As of December 31, 2013

Account

Balance
12/31/13
($)

Balance
9/30/13
($)
TB

PQ

Change
from
9/30/13 to
12/31/13
($)

Change
from
9/30/13 to
12/31/13
(%)

Fifth Federal
SparkasseFrankfurt
American
NorthWest Bank
BNY Federal
Tenth National
Bank
Bank of Citizens
Tick Legend
TB
PQ
PY

Agreed to 12/31/13 Trial Balance without exception
Agreed to 09/30/13 Trial Balance without exception
Agreed to 12/31/12 Trial Balance without exception

Change
Change
from
Balance
from
12/31/12
12/31/12
12/31/12 to
to
($)
12/31/13
12/31/13
($)
(%)
PY
489,119.72
(10,198.18)
-2.09%

478,921.54

492,531.16

(13,609.62)

-2.76%

235,087.29

229,791.07

5,296.22

2.30%

231,686.49

3,400.80

1.47%

144,019.83

151,674.92

(7,655.09)

-5.05%

149,277.31

(5,257.48)

-3.52%

477,832.15

462,403.33

15,428.82

3.34%

469,512.91

8,319.24

1.77%

301,015.18

311,653.46

(10,638.28)

-3.41%

316,987.22

(15,972.04)

-5.04%

348,701.60

309,243.12

39,458.48

12.76%

311,784.63

36,916.97

11.84%

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EXHIBIT 3
Bank Reconciliation Testing Summary
Work Paper Reference: 100-2
Prepared By: DRH (Audit Associate)
1/10/2014
Bank Rec Testing Summary
Simply Soups Inc.
As of December 31, 2013

Account

Bank Balance
12/31/13

Reconciling
Items

A

B

Book Balance
12/31/13

Fifth Federal

508,219.33

29,297.79

478,921.54

Sparkasse-Frankfurt

315,711.76

80,624.47

235,087.29

American NorthWest Bank

121,987.17

(22,032.66)

144,019.83

BNY Federal

493,154.12

15,321.97

477,832.15

Tenth National Bank

312,580.29

11,565.11

301,015.18

Bank of Citizens

304,312.43

(44,389.17)

348,701.60

Tick Legend
A Agreed to 12/31/2013 Bank Statements without exception
B Reconciling items were tested without exception, see Bank Test Documentation (Audit Step 100-3)
TB Agreed to 12/31/2013 Trial Balance without exception

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TB

Notes

EXHIBIT 4
Key Information for the audit step “Confirm Cash Balances”

Audit Firm:
Year End Date:
Client Address:
Client Phone Number:
Client Contacts:

Putnam and Jacobs LLP
December 31, 2013
177 Washington Lane
Cherry Hill, NJ 08034
609-555-5555
Lou Jennings
Lou.jennings@ssoups.com
Chuck Rogers
Chuck.rogers@ssoups.com

PBC

Bank Accounts – 2013
Bank Name
Fifth Federal
Sparkasse-Frankfurt
American
NorthWest Bank
BNY Federal
Tenth National Bank
Bank of Citizens

Bank Address
73 Union Street New York
NY 10001
Landstrasse 89-21 Frankfurt
60326 DE
234 Market Street
Milwaukee WI 53202
3621 Ave De Lafayette
Boston MA 02111
313 S. Chadwick Street
Philadelphia PA 19103
3621 Union Ave Denver CO
80220

Bank Manager

Account
Name

Account
Number(s)

Authorized
Signer

George Williams

Checking

675-42223

Lou Jennings

Helga Jones

Checking

44-322711

Lou Jennings

Richard Johnson

Checking

05-198305

Lou Jennings

Betty Smith

Savings

061-22031

Lou Jennings

Greg Fordham

Savings

26-798422

Lou Jennings

Denise Bentley

Checking

89-123661

Lou Jennings

Tick Legend
PBC Prepared by Client

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