Accounting records are maintained on a computer using proprietarysoftware.Your assistant is a newly recruited business graduate who has done an accounting course buthas no practical experience.Because of the small size of the company there is limited opportunity for segregation ofduties. You decide, as in previous years, that the appropriate audit strategy is to obtainevidence primarily through the performance of substantive procedures. You also plan toperform the audit around the computer as the proprietary software is known to be reliable anddetails of all transactions and balances can be readily printed out.On arriving at the company's premises in December 2019 to perform the final audit on the 31October 2019 financial statements, you obtain a copy of the year end bank reconciliationprepared by the bookkeeper and checked by the managing director. This is reproduced below. Balance per bank statement 31 October 2019: $36752.00Deposits outstanding:30 October $3,774.0031 October $3,946.00 $7,720.00 $44,472.00Outstanding cheques:1348 50.001362 578.001363 1138.001364 1448.001365 3800.001366 796.001367 108.001368 3552.001369 512.00 ($11,982.00) $32,490.00Cheque returned 'not sufficient funds' 30 October $696.00Bank charges October $180.00Balance per books 31 October 2019 $33,366.00 You have already obtained the bank confirmation and lists of cash (and cheque) receipts andpayments printed out from the computer. These lists have been added and the totals agreedwith ledger postings. You decide the first task to set for your assistant is the verification ofthe bank reconciliation. List the audit procedures to be followed by your assistant in verifying the bankreconciliation in sufficient detail for an inexperienced staff member to follow Explain the purpose of each procedure in terms of audit objectives Discuss the reliability of bank statements as audit evidence. What steps can be takenif it is considered desirable to increase their reliability Distinguish between 'auditing around the computer' and 'auditing through thecomputer' Explain the circumstances when it would be inappropriate for the auditor to relyon auditing around the computer.
Accounting records are maintained on a computer using proprietary
software.
Your assistant is a newly recruited business graduate who has done an accounting course but
has no practical experience.
Because of the small size of the company there is limited opportunity for segregation of
duties. You decide, as in previous years, that the appropriate audit strategy is to obtain
evidence primarily through the performance of substantive procedures. You also plan to
perform the audit around the computer as the proprietary software is known to be reliable and
details of all transactions and balances can be readily printed out.
On arriving at the company's premises in December 2019 to perform the final audit on the 31
October 2019 financial statements, you obtain a copy of the year end bank reconciliation
prepared by the bookkeeper and checked by the managing director. This is reproduced below.
Balance per bank statement 31 October 2019: $36752.00
Deposits outstanding:
30 October $3,774.00
31 October $3,946.00 $7,720.00
$44,472.00
Outstanding cheques:
1348 50.00
1362 578.00
1363 1138.00
1364 1448.00
1365 3800.00
1366 796.00
1367 108.00
1368 3552.00
1369 512.00 ($11,982.00)
$32,490.00
Cheque returned 'not sufficient funds' 30 October $696.00
Bank charges October $180.00
Balance per books 31 October 2019 $33,366.00
You have already obtained the bank confirmation and lists of cash (and cheque) receipts and
payments printed out from the computer. These lists have been added and the totals agreed
with
the bank reconciliation.
- List the
audit procedures to be followed by your assistant in verifying the bank
reconciliation in sufficient detail for an inexperienced staff member to follow - Explain the purpose of each procedure in terms of audit objectives
- Discuss the reliability of bank statements as audit evidence. What steps can be taken
if it is considered desirable to increase their reliability - Distinguish between 'auditing around the computer' and 'auditing through the
computer' - Explain the circumstances when it would be inappropriate for the auditor to rely
on auditing around the computer.
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