Audit Preparation Summary

Cost of Goods Sold (COGS):
- Jul 2025 Income Statement shows Total COGS of $4,171,187.67, with 'Cost of Goods Sold' as $3,751,375.71 and '5004 - Domestic Furniture' as $416,184.86. However, the Trial Balance for '5004 - Domestic Furniture' shows a year-to-date debit of $1,919,162.61 and for 'Cost of Goods Sold' $5,299,896.30. Ensure periods are consistent when reconciling these balances.
Salaries & Wages:
- Jul 2025 Income Statement ('Total - 6400 - Salaries & Wages') reports $551,258.33, while the Trial Balance 'Total - 6400 - Salaries & Wages' is $1,139,070.51 (likely YTD). Ensure the monthly figures are reconciled with YTD movements.
Net Income Discrepancy:
- Net Income per Jul 2025 Income Statement: $754,527.05.
- Net Income per Balance Sheet (YTD cumulative): ($1,623,772.66).
- This may be due to accumulated YTD losses/profits not aligning with monthly performance; ensure all months tie from the trial balance to the balance sheet's retained earnings/net income rollforward.
Retained Earnings Movement:
- Balance Sheet ('Retained Earnings'): $49,407,321.50.
- Trial Balance '3030 - Retained Earnings' is a credit of $49,407,321.50 (matches).
- Ensure the Retained Earnings + Net Income = Total Equity movements are supported by prior year closings and current activity.
Cash and Bank Balances:
- Total Bank per Balance Sheet: $41,444,752.15 (sum of all bank accounts).
- Trial Balance lists matching debit/credit balances for the individual bank accounts; confirm all bank accounts are accurately reconciled to statements.

2. Significant Variances or Unusual Transactions

Inventory Asset:
- Very high balance: $14,842,724.73.
- Compare with expected turnover and current COGS to ensure inventory isn't overvalued, obsolete, or misstated.
Accrued Expenses & Deferred Revenue:
- Accrued Expenses: $2,943,157.52; Deferred Revenue: $1,317,670.92 (Jul 2025). These are significant and require substantiation and aging details.
'Ask My Accountant' (9999):
- Trial Balance lists $1,100,062.81 (debit) and July 2025 Income Statement shows ($61,500.00) credit as 'Other Income'.
- Large values in this account suggests unresolved or unclassified transactions – auditors will scrutinize this thoroughly.
Cumulative Translation Adjustment:
- Balance Sheet shows ($1,226,214.94); ensure translation and currency movements are well documented, especially with numerous foreign bank accounts and VAT accounts.
VAT and Sales Tax Liability Accounts:
- VAT on Sales DE: $2,197,036.58; 売上に対するVAT（付加価値税）: $773,030.13; GST/HST Payable: $872,491.89; others also significant.
- Review for proper reconciliation to tax filings and investigate any old or unreconciled balances.
Payroll account negative balances:
- '1004 - Payroll' ($190,000.00) and '1012 - Operating Account - US2' ($3,186.77) negative balances may indicate outstanding checks or cash overdrafts; ensure appropriate coverage and explanations.
'Inventory Adjustments' is negative in the July 2025 income statement:
- ($13,025.73) is credited; could indicate a correction or write-off requiring documentation.

3. Accounts with Large, Unexplained Balances / Frequent Adjustments

'Ask My Accountant' (9999):
- Very high balance: $1.1M.
- These should be fully reviewed and resolved prior to audit; balances here imply unresolved classification of significant value.
Deferred Revenue:
- Multiple sub-accounts totaling $1.3M. Verify contracts supporting these unearned revenues and adjust for amounts earned but not yet recognized.
Inventory Asset:
- Consistently large and may indicate overstock or slow-moving inventory. Review inventory aging reports to assess valuation for obsolescence.
VAT/GST accounts (multiple):
- High total balances; ensure all reconcile to relevant tax filings and are not carrying historical errors.
Exchange Rate Variance:
- Trial Balance shows credit of $179,943.67. Also July Income Statement includes ($183,380.07) gain. Ensure full documentation.

4. Compliance Concerns & Potential Journal Issues

Unreconciled Suspense/Placeholder Accounts:
- '9999 - Ask My Accountant' is intended for temporary use; must be fully cleared with supporting documentation.
Bank and Payroll Reconciliations:
- Ensure July 2025 balances for all cash and bank accounts (especially those with negative balances) are substantiated by reconciliations and statements for month end.
VAT/GST/Tax Compliance:
- Provide clear reconciliations of VAT, GST/HST, and Sales Taxes to filed returns—these accounts are large and varied across countries.
Accrued Expenses & Payroll Liabilities:
- Ensure accruals and payroll liabilities are supported by detailed schedules (e.g., payroll runs, benefit schedule, bonus accrual support).
Exchange Rate Adjustments:
- Document procedures for currency conversions and translation, as well as the rationale for significant adjustments to 'Cumulative Translation Adjustment' and 'Exchange Rate Variance'.

5. Suggested Actions Before Audit

Clear Suspense Accounts: Fully resolve all amounts in 'Ask My Accountant' with appropriate journal entries & supporting documentation.
Bank and Cash Reconciliations: Prepare complete reconciliations (including supporting statements for each account) as of end-Jul 2025. Investigate and explain negative balances.
Inventory Validation: Review and reconcile inventory to physical counts and assess for obsolescence; ensure value is current and justified.
Tax Account Reconciliations: Match all VAT, GST, and sales tax accounts to the latest returns and reconcile/adjust for old or uncleared items.
Accrual and Deferred Revenue Support: Compile backup schedules for all accrued expenses and deferred revenue balances; match to contracts, invoices, etc.
Roll-Forwards & Tie-Outs: Prepare rollforwards for equity accounts, retained earnings, and net income between statements. Ensure all activity is traceable month-to-month, YTD, and vs. prior year.
Document Exchange Rate Approach: Summarize methods and sources used for currency translations and prepare support for large translation/variance figures.

6. Summary Table of Key Items to Review

7. Final Recommendations

Account/Area	Description/Issue	Action Needed
Ask My Accountant (9999)	Very high unresolved balance ($1.1M)	Investigate, resolve, and reclassify all items with support
Inventory Asset	Large balance; turnover/valuation concerns	Reconcile to counts and recent COGS; analyze for obsolescence
Deferred Revenue	Multiple sub-accounts, $1.3M total	Prepare list of supporting contracts and unearned revenue schedule
VAT/GST/Tax Accounts	Multiple, high-value, possibly unreconciled	Reconcile to returns; investigate any old/nearly matching debits & credits
Bank/Payroll Accounts	Several negative balances	Bring all accounts current, obtain statements, explain negatives
Accrued Expenses & Payroll Liabilities	Large balances	Compile backup schedules for each
Cumulative Translation/FX Variance	Large translation adjustments	Document calculation methodology & obtain support

Start resolving high-risk/general ledger suspense items immediately.
Proactively prepare reconciliations for all high-activity/large-balance accounts (inventory, cash, tax, deferred revenue, accruals).
Ensure supporting documentation is available for all balances flagged above.
Communicate with your audit team if any material issues are discovered or if any balances require further research beyond month end.