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Group Assignment

The document outlines a series of audit questions and procedures related to purchasing, inventory, and cash balance misstatements. It requires identifying audit objectives, testing controls, and recognizing potential financial misstatements, along with suggesting substantive audit procedures. Additionally, it discusses motivations for intentional misstatements and controls to mitigate fraud risks.

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newaybeyene5
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17 views2 pages

Group Assignment

The document outlines a series of audit questions and procedures related to purchasing, inventory, and cash balance misstatements. It requires identifying audit objectives, testing controls, and recognizing potential financial misstatements, along with suggesting substantive audit procedures. Additionally, it discusses motivations for intentional misstatements and controls to mitigate fraud risks.

Uploaded by

newaybeyene5
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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Questions 1

1. Is the purchasing function performed by personnel who are independent of the receiving
and shipping functions and the payables and disbursing functions?
2. Are all vendors’ invoices routed directly to accounting from the mailroom?
3. Are all receiving reports pre numbered and the numerical sequence checked by a person
independent of check preparation?
4. Are all extensions, footings, discounts, and freight terms on vendors’ invoices checked
for accuracy?
5. Does a responsible employee review and approve the invoice account distribution before
the transaction is entered in the computer?
6. Are checks automatically posted in the cash disbursements journal as they are pre pared?
7. Are all supporting documents properly cancelled at the time the checks are signed?
8. Is the custody of checks after signature and before mailing handled by an employee
independent of all payable, disbursing, cash, and general ledger functions?
Required
a) For each of the preceding questions, state the transaction-related audit objective(s) being
fulfilled if the control is in effect.
b) For each internal control, list a test of control to test its effectiveness.
c) For each of the preceding questions, identify the nature of the potential financial
misstatement(s) if the control is not in effect.
d) For each of the potential misstatements in part c, list a substantive audit procedure that
can be used to determine whether a material misstatement exists.

Questions 2
Following are audit procedures commonly performed in the inventory and warehousing cycle for
a manufacturing company:
1. Read the client’s physical inventory instructions and observe whether they are being
followed by those responsible for counting the inventory.
2. Account for a sequence of inventory tags and trace each tag to the physical inventory to
make sure it actually exists.
3. Compare the client’s count of physical inventory at an interim date with the perpetual
inventory master file.
4. Trace the auditor’s test counts recorded in the audit files to the final inventory
compilation and compare the tag number, description, and quantity.
5. Compare the unit price on the final inventory summary with vendors’ invoices.
6. Account for a sequence of raw material requisitions and examine each requisition for an
authorized approval.
7. Trace the recorded additions on the finished goods perpetual inventory master file to the
records for completed production.
Required
a) Identify whether each of the procedures is primarily a test of control or a substantive test.
b) State the purpose(s) of each of the procedures.
Questions 3
The following are misstatements that might be found in the client’s year-end cash balance
(assume that the balance sheet date is June 30):
1. The outstanding checks on the June 30 bank reconciliation were under footed by $2,000.
2. A loan from the bank on June 26 was credited directly to the client’s bank account. The
loan was not entered as of June 30.
3. A check was omitted from the outstanding check list on the June 30 bank reconciliation.
It cleared the bank July 7.
4. A check was omitted from the outstanding check list on the bank reconciliation. It cleared
the bank September 6.
5. Cash receipts collected on accounts receivable from July 1 to July 5 were included as
June 29 and 30 cash receipts.
6. A bank transfer recorded in the accounting records on July 1 was included as a deposit in
transit on June 30.
7. A check that was dated June 26 and disbursed in June was not recorded in the cash
disbursements journal, but it was included as an outstanding check on June 30.
Required
a. Assuming that each of these misstatements was intentional (fraud), state the most likely
motivation of the person responsible.
b. What control can be instituted for each fraud to reduce the likelihood of occurrence?
c. List an audit procedure that can be used to discover each fraud.

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