ACE AUDIT

A review by Paul D. Warner

During the past few years, we have reviewed many general ledger, tax, and word processing programs. This time we decided to take a look at an audit assistance program. We selected ACE Audit, which was originally developed and marketed by Sequel/McGladrey and is currently one of the components of Computer Language Research's (CLR) Automated Client Engagement (ACE) Windows products. ACE Audit is primarily designed as a trial balance tool for the performance of compilations, reviews, and audits. It can also be used to perform write-ups. It can also bridge data into many of the tax return preparation packages.

Installation

ACE Audit was installed and tested under Windows 95 on a DX2-66 computer. No problems were encountered.

Main Menu Bar

In addition to the usual Windows menu bar items, ACE Audit has the following unique drop-down menu selections:

* Options

* Tasks

* Reports

* TaxTools

* Utilities

* Programs

A ribbon bar appears below the main menu bar. It provides a graphical access to many of the choices contained in the main menu bar. For example, the trial balance can be accessed from the Tasks menu or by clicking an icon on the ribbon bar.

Setting Up a Client

The establishment of a new client involves the entry of the usual information such as name, address, etc. It also involves the entry of following required items--

* Fiscal year end

* Current period end. When closing a period, the current period date advances automatically by an increment based on the number of periods per year information which is entered (e.g., annual, semi-annual, monthly, etc.).

* Number of periods per year: annual, semi-annual, thirdly, quarterly, bimonthly, monthly, and four weeks.

* Entity--limited to corporation, S-corporation, partnership, or not-for-profit.

* Account format. A maximum of 13 digits or characters (the testing was performed using a three-digit account code).

Once the preceding information has been entered and saved (ACE Audit saves each client in a separate subdirectory), it cannot be changed. If changes are necessary, a new client must be set up and the data exported and imported. I also wonder why trusts and sole proprietors are not available as entity types.

Additional data and options may also be entered including--

* Federal ID number,

* how tax balances are to be created (i.e., based on the adjusted, report, or other),

* whether or not the client is a consolidated master,

* The use of the write-up system option. ACE Audit includes 12 journals (e.g., cash receipts, cash disbursements, accounts payable) into which transactions can be entered. Turning off this option makes these journals inaccessible. It is this option which allows this system to be used for either write-up purposes or simply as an audit/review assist tool for handling trial balances.

* The Save Write-up History option. Selecting this option causes the recording of all transactions and adjusting journal entries when a period is closed. This provides the basis for year-to-date reporting.

Account Coding

In addition to being assigned a type, class, and subclass code, each account can be assigned up to five additional grouping codes from the following: tax code, leadsheet, leadsheet subcode, grouping code 1, grouping code 2, and consolidation grouping.

Every account must be assigned a type (e.g., asset, liability). The class (e.g., current, noncurrent) and subclass (e.g., cash & equivalents), as well as, all of the other codes are optional. The options for each code can be accessed by pressing the F2 key when the cursor is over the item. The codes for items 1­6 above will automatically be inserted when the type, class, and subclass codes previously used have codes for any of the items in 1 to 6. This significantly reduces the effort required to code a client. The package includes a sample set of codes and all of the line number codes for the tax returns, and, in addition, ACE Audit allows you to copy charts of accounts.

The Trial Balance

The ACE Audit chart of accounts contains the following 15 sets of balance columns as shown in Exhibit 1.

ACE Audit can store up to six prior years' history. Any changes to the Adjusted Prior Year data must be done in the prior year's trial balance. It cannot be done in the current year.

Trial balances can also be obtained for any of the grouping codes listed above.

Data Entry

I tested the system with the journal entry option turned off. This is the way similar packages are used in the conduct of an audit or review. Data can be manually entered into the trial balance. It can also be imported from a spreadsheet, an ASCII text file, or directly from an accounting package (e.g., Platinum). Unfortunately the number of accounting packages, other than ACE Audit packages, from which a direct import is available is limited. Remember, most packages do export ASCII text files. ACE Audit allows you to save file format settings for ASCII files, thereby simplifying the import function. ACE Audit can also export files.

The Adjusting Journal Entries column accumulates entries for each account. Adjusting journal entries are not automatically posted. A previously posted adjustment entry can be reversed. Recurring and reversing entries (between periods) are also allowed. A passed entries report is available (note--reports can be output to a printer, the screen, or a file. Some can also be saved as a Lotus file).

All data entry results in the immediate updating of the files (you won't find a save option in the file menu). Any data entered can be removed by deleting it.

Write-Up. Write-up journals can be used to enter a series of transactions in standard journal entry form. ACE Audit provides 12 write-up journals. CLR suggests that the write-up journals are ideal for smaller write-up clients. Frankly, Quickbooks, or a similar package is better suited for this purpose. ACE Audit summarizes the write-up information into general ledger format for preparation of tax returns and financial statements. Write-ups can be performed on a monthly, 13 period, quarterly, semiannual, or annual basis.

The write-up journal entries are automatically posted to the transaction columns of the Trial Balance. The twelve journals available in ACE Audit are shown in Exhibit 2.

You can use these journals to make entries or enter an amount directly in the transaction columns in the trial balance, but you cannot do both. If you use the write-up journals, then you cannot enter the balances into the transaction columns. If you enter the amounts in the transaction columns in the trial balance, then the only journal which you can use is the Budget Journal. All other journals will be unavailable.

Performing Analytical Reviews

There are 37 predefined analytical ratios categorized into four groups:

* Liquidity ratios

* Activity ratios

* Profitability

* Coverage

The ratios may be selected individually or all at once. The ratio reports provide a detailed breakdown on how each ratio was calculated. The help systems provide a detailed explanation and interpretation of each ratio.

ACE Audit produces four analytical review reports:

* Preliminary Review Report

* Final Review Report

* Ratios Report

* Variance Reports

Preliminary Review Report. ACE Audit computes preliminary ratios based on either interim balances (e.g., less than 12 months) or unadjusted balances (12 months). The procedure for data entry is different depending on whether interim or unadjusted balances are used.

The report includes the dollar and percentage changes for 12 major financial statement balances (e.g., current assets, operating income). You can obtain the preliminary review report without entering the balances for all accounts in the chart of accounts.

In addition the following ratios are calculated and the report includes suggestions and pertinent questions:

* Current ratio

* Days' sales in receivables

* Days' cost of sales in inventory

* Days' cost of sales in payables

* Gross profit percentage

* Altman Z Score (a likelihood of bankruptcy test)

Final Review Report. The final review report repeats the same analytical review procedures performed in the preliminary review.

Ratios Report. The ratio report includes the 37 predefined analytical ratios (or only the ones selected). It can compute the ratios for up to seven years for each item. The computational data is also included. Unfortunately, you cannot add additional ratios, a feature contained in some of the other packages.

Workpapers and Leadsheets

Workpapers and leadsheets are spreadsheet type documents which are used to further analyze balances and document engagement work. There are two different types, integrated and nonintegrated. An integrated workpaper is tied to an account number and shows amounts that are reflected in the trial balance. A nonintegrated workpaper is not tied to an account and is used for additional
documentation.

Tickmarks. Tickmarks can be attached to any amount in a leadsheet or workpaper. The tickmarks option in the Tasks menu lets you establish a unique set of tickmarks for each client. The tickmarks defined here are "global" and are included on an F2 choice list when working on leadsheet schedules or workpapers. Global tickmarks can be used from year to year, and copied to any other client. ACE Audit also lets you assign tickmarks that apply only to a specific leadsheet or workpaper (referred to as "local" tickmarks). Both global and local tickmarks can have explanations which appear at the bottom of any document in which they are used. Memos can be attached to a tickmark explanation, if the explanation is too long (72 characters).

Financial Statements

The detailed description of the process of developing a financial statement is too long to include in this article. The testing of the package included the development of a customized report. It was relatively simple.

If you have a standard format for most financial statements, you might find that it is quicker to create your own master financial statement and copy it to other clients.

ACE Audit provides for 10 configurations of default financial statements including indirect and direct cash flows
statements.

ACE Audit reports can contain as many columns as necessary. Either text or formulas can be entered into any column. The formulas link the trial balance accounts to the financial statements.

In a consolidated master, subsidiaries can be arranged in any order on the statement and any other columns applicable to the consolidation (e.g., eliminating entries, totals, final balances) can be included or excluded.

A floating toolbar containing editing options (e.g., insert dollar sign, commas) appears on the desktop when reports are being designed. CLR has a graphics package (Graphically!) which can be used to generate charts. I did not test it.

Point and Shoot. ACE Audit uses the click-and-drag capability, called point and shoot, to generate financial statement formulas. Instead of entering financial statement formulas manually, you can use the point-and-shoot icon on the floating toolbar. By using point and shoot, the task of modifying or even generating new financial statements is greatly simplified.

Report totals automatically change as the formulas are modified. This aids in debugging an out of balance report. It is also possible to generate a report which only contains the formulas.

Rounding. The rounding feature will round all report balances in the current year and prior years. Only the report balances are rounded, not the underlying data.

Specialized Reports. In addition to the financial statements, the following specialized reports are available as shown in Exhibit 3.

The report menu also includes the standard AICPA accountant's reports for audits, reviews, and compilations.

Tax Return Interface

ACE Audit can create link files for the following tax services:

* GoSystem/Fast-Tax for Windows and DOS

* A-plus Tax

* Digitax

* Lacerte

* Pencil Pushers

* ProSystem fx for Windows and DOS

* SCS/Compute

* TurboTax

* UltraTax

The tax year will default automatically.

Ace Audit can also produce tax return pro formas without linking to a tax return preparation package.

Evaluation

ACE Audit was very easy to use and should prove a valuable audit/review aid. Although the developers recommend it for compilations, its lack of standardized journals for receipts, disbursements, etc., limit its usefulness. CLR has other packages which may be better for compilations. The package includes a very useful tutorial which greatly simplifies the task of understanding the application. I do have one minor complaint. The package installs a calculator which opens automatically every time you boot the computer. Instead, it should be placed in the accessories folder.

Requirements

* 80486 DX or higher

* Microsoft Windows 3.1 or higher and Windows 95 (the package has not been certified for Windows NT)

* 8 MB RAM

* 11.5 to 16 MB of hard disk space--depending on the tax service selected and whether the Quick Tour is installed

* Supported networks include Novell Netware 3.11 or higher, 4.1 or higher, and Windows for Workgroups.

Vendor and Pricing

Computer Language Research (CLR)

2395 Midway Road

Carrollton, TX 75006

1 (800) 865-5257

Pricing depends upon the number of users. A single-user version costs $595. There is an annual maintenance fee and an additional charge for the network
interface. *

Paul D. Warner, PhD, CPA, is technology editor of The CPA Journal and head of the accounting department of Hofstra University.

Editors:
Paul D. Warner, PhD, CPA
Hofstra University

L. Murphy Smith, DBA, CPA
Texas A&M University

* Consolidation Reports