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18-24 (continued)
MISSTATEMENT
a.
TRANSACTION-
RELATED
AUDIT OBJECTIVE
NOT MET
b.
PREVENTIVE
CONTROL
c.
SUBSTANTIVE
PROCEDURE
4
Acquisition
transactions are
properly classified
(classification).
Account distributions
are reviewed by
a responsible
individual prior
to entry into the
system.
Examination of
supporting invoices
for entries into the
repairs and
maintenance
account to verify
the proper account
distribution.
5
Recorded cash
disbursements are
for goods and
services actually
received
(occurrence).
Once checks are
signed by the
treasurer, they are
returned to someone
independent of
purchasing and
accounts payable
for mailing.
All supporting
documents are
cancelled to prevent
reuse.
Review physical
inventory shortages
for unusual or
inconsistent
occurrences.
Compare payee on
the check to the
company name on
the vendor’s invoice.
6
Recorded cash
disbursement
transactions are
correctly stated
(accuracy).
Checks are prepared
using a computer
process, which
assures
simultaneous
preparation of
check and journal.
Reconcile bank
account on a timely
basis at the end of
each month.
Compare check
amounts to entries
in the cash
disbursements
journal.
Test bank
reconciliation.
18-25 a. The type of audit evidence used for each procedure is as follows:
AUDIT
PROCEDURE
TYPE OF AUDIT EVIDENCE
1
2
3
4
5
6
7
8
9
Reperformance
Inspection of internal documentation; reperformance
Substantive analytical procedure
Inspection of external documentation (exchange rate); reperformance
Inquiries of client
Inspection of external documentation
Confirmation
Inspection of internal and external documentation
Substantive analytical procedure
b.
AUDIT PROCEDURE
BALANCE-RELATED
AUDIT OBJECTIVE
Detail tie-in
Existence
Completeness
Accuracy
Classification
Cutoff
Obligations
1
X
2
X
3
X
X
4
X
5
X
6
X
X
X
X
7
X
X
X
X
8
X
X
9
X
X
X
18-23
18-25 (continued)
be gathered using other audit procedures.
In this case, the evidence used in procedure 5 is from inquiries
of the client, which is generally a weak form of evidence. Thus, the
Procedure 2 uses internal documentation as its primary
internal documents.
18-26
a. Vouchers 2528 and 2531 were incorrectly included in the June
2016 acquisitions journal. The associated goods were received
after June 30, 2016.
As for July 2016, voucher numbers 2527 and 2530 were
before the end of June 2016.
Let’s assume the corrections were made in two journal entries as
follows:
Accounts payable $11,687.99
Inventory $11,687.99
Inventory $ 6,935.73
Accounts payable $ 6,935.73
vendor invoices or vendor statements to determine if the items
reflected as being received by the client just prior to year end are
18-24
18-26 (continued)
that receipts of goods after year end are not reflected in the
acquisitions journal (and thus the accounts payable balance) as of
year end.
order as goods are received.
Require receiving reports to be routed to accounts payable
daily for immediate voucher preparation.
Accounts payable clerks account for the numerical sequence
of receiving reports and prepare voucher packages in
reports received.
An independent person matches the purchase order,
18-27 a. The fact that the client made a journal entry to record vendors’
invoices which were received late should simplify the CPA’s test
for unrecorded liabilities and reduce the possibility of a need for a
entry. In this audit, the CPA should test entries in the 2017
voucher register to ascertain that all items that were applicable to
2016 have been included in the journal entry recorded by the
client.
18-25
18-27 (continued)
both technically competent and reasonably independent. Once
her work to a less extensive test in this audit area if the results of
the internal auditor’s tests were satisfactory.
c. No. Response to inquiry alone generally does not constitute
responsibility for making his or her own tests.
d. Work done by an auditor for a federal agency will normally have
no effect on the scope of the CPA’s audit, since the concern of
reduce certain work in an area. However, government auditors
are usually interested primarily in substantiating as valid and
allowable those costs which a company has allocated against
specific government contracts or sales to the government, and
statements in other ways.)
e. In addition to the 2017 acquisitions journal, the CPA should
consider the following sources for possible unrecorded liabilities:
1. If a separate cash disbursements journal exists, examine
underlying documentation for disbursements recorded during
the first part of 2017. Determine if any of the disbursements
relate to acquisitions that should have been recorded in
2016.
18-27 (continued)
acquisitions journal.
3. Status of tax returns for prior years still open.
4. Discussions with employees.
5. Representations from management.
6. Comparison of account balances with preceding year.
18-28
a.
BERGERON
INTERNAL CONTROLS
b.
TRANSACTION-
RELATED AUDIT
OBJECTIVE(S)
c.
TEST OF CONTROLS
1. Prenumbered purchase
orders are used and
accounted for.
Occurrence,
Completeness
Review Bergeron’s
accounting for the sequence
of purchase orders to
determine if all are properly
accounted for.
2. All purchase orders must
be approved by the vice
president of finance.
Occurrence
Examine a sample of
purchase orders and verify
that all are properly
approved by the vice
president of finance.
3. Prenumbered receiving
reports are prepared
upon receipt of goods.
Completeness
Review Bergeron’s
accounting for the sequence
of receiving reports to
determine if all are properly
accounted for.
4. Goods are stored in a
warehouse that is under
the control of the shipping
manager.
Completeness
Observe whether access to
the inventory in the
warehouse is properly
restricted.
Inquire as to how the shipping
manager restricts access to
inventory.
18-28 (continued)
a.
BERGERON
INTERNAL CONTROLS
b.
TRANSACTION-
RELATED AUDIT
OBJECTIVE(S)
c.
TEST OF CONTROLS
5. Perpetual inventory
records are updated upon
receipt of goods as
evidenced by the
receiving report.
Completeness,
Accuracy,
Timing
Examine a sample of
receiving reports and verify
that the perpetual inventory
records were updated on a
timely basis.
6. Chief accountant
matches vendor invoices
to purchase order and
receiving reports (If
related to goods
purchased), checking for
accuracy and
appropriateness. Chief
accountant documents
review by initialing
documents.
Occurrence,
Completeness,
Accuracy
Examine a sample of
matched documents and
verify that all are properly
initialed by the chief
accountant and that
amounts are accurate and
appropriate.
7. Access to accounting
records is restricted by
password to the chief
accountant.
Occurrence
Attempt to access the
accounting records with an
invalid password.
8. Accounting records are
updated timely based on
matching of
documentation.
Timing
Examine a sample of matched
documents and verify that
entries were made in the
accounting records in the
correct time period.
9. President reviews all
documentation before
approving cash
disbursements and
controls signed checks
until mailing.
Occurrence
Examine a sample of cash
disbursement transactions
and verify that all are
properly approved by the
president.
10. Controller performs a
monthly bank
reconciliation.
Occurrence,
Completeness,
Accuracy,
Timing
Examine a sample of monthly
bank reconciliations to verify
they were performed and
properly completed.
