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Case 3

The audit program outlines 7 steps to audit Preston Manufacturing's general journal and general ledger files: 1. Edit the general journal file for errors and inconsistencies. 2. Edit the general ledger file for errors and exceptions. 3. Select a sample of general journal transactions to test for accuracy by vouching transaction data to source documents. 4. Merge general journal and general ledger entries to find unmatched transactions and correct errors. 5. Recalculate general journal amounts and ledger balances, noting discrepancies. 6. Prepare comparative financial statements and financial ratios to identify accounts needing investigation. 7. Analyze accounts in selected financial ratios to investigate irregularities in beginning balances,

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88 views3 pages

Case 3

The audit program outlines 7 steps to audit Preston Manufacturing's general journal and general ledger files: 1. Edit the general journal file for errors and inconsistencies. 2. Edit the general ledger file for errors and exceptions. 3. Select a sample of general journal transactions to test for accuracy by vouching transaction data to source documents. 4. Merge general journal and general ledger entries to find unmatched transactions and correct errors. 5. Recalculate general journal amounts and ledger balances, noting discrepancies. 6. Prepare comparative financial statements and financial ratios to identify accounts needing investigation. 7. Analyze accounts in selected financial ratios to investigate irregularities in beginning balances,

Uploaded by

Halsey Shih Tzu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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You are performing a financial audit of the general ledger accounts of Preston Manufacturing.

As transactions are processed,


summary journal entries are added to the general ledger file at the end of the day. At the end of each day, the general journal file
is processed against the general ledger control file to compute a new current balance for each account and to print a trial balance.

The following resources are available as you complete the audit:

   Your firm’s generalized computer audit software


   A copy of the general journal file for the entire year
   A copy of the general ledger file as of fiscal year-end (current balance = year-end balance)
   A printout of Preston’s year-end trial balance listing the account number, account name, and balance of each account
on the general ledger control file

Fields in the General Journal and General Ledger Control are as follows:

Create an audit program for Preston Manufacturing. For each audit step, list the audit objectives and the procedures you would
use to accomplish the audit program step.

Audit program Audit objectives Procedure

1. Edit the errors and inconsistencies To evaluate and Review and correct
in the general journal file. Common assess the quality common error
errors patterns may be found in of the data in the patterns. Investigate
debit and credit code, document file. the cause of such
type, date for current fiscal year, errors.
data values and non-numeric data
in numeric fields such as account
number, document number and
amount.

2. Edit the errors and exceptions in To evaluate and Review and correct
the general ledger file. Common assess the quality common error
error patterns include of the data in the patterns. Investigate
discrepancies in the debit and file. the cause of such
credit code, ignored data vales errors.
and non-numeric data in numeric
field such as in the current balance
and account number.

3. Select a sample of general journal To test the Identify discrepancies


transactions. It should be arranged accuracy of data by vouching
by amount then sorted by entry transactions transaction data
document type. values with source
documents. Correct
the errors identified.
4. With reference to the account To test the Identify discrepancies
number, merge the entries in the accuracy of data by comparing
general journal and general ledger entry transactions unmatched
and look for unmatched entries in transaction data
the general journal. values to source
documents. Correct
the errors identified.
5. Perform recalculation of the To test the Review discrepancies
general journal amounts and the accuracy of the to correct errors
current balance of each ledger ledger balance found in the
account. Any discrepancies transaction amounts
between the recalculated amount and ledger balances.
and the original amount should be
noted.

6. Prepare comparative financial To identify which Search for abnormal


statements for the current and accounts are to be account balances by
prior year. Select and include investigated in reviewing the trends
financial ratios to spot abnormal depth and ratios.
account balances.

7. Analyze the accounts included in To provide Appropriately


the selected financial ratios and reference investigate, review
identify the irregularities in the documents for the and analyze selected
trend of its beginning balances, accounts which accounts.
transactions and current balances.
are to be
investigated in
depth by the
auditor

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