In testing cash disbursements for the Jay Klein Company,you obtained an understanding of internal control. The controls are reasonably good,and no unusual audit problems arose in previous years.Although there are not many individuals in the accounting department, there is areasonable separation of duties in the organization. There is a separate purchasing agentwho is responsible for ordering goods and a separate receiving department that countsthe goods when they are received and prepares receiving reports. There is a separationof duties between recording acquisitions and cash disbursements, and all informationis recorded in the two journals independently. The controller reviews all supportingdocuments before signing the checks, and he immediately mails the checks to the vendors.Check copies are used for subsequent recording.All aspects of internal control seem satisfactory to you, and you perform minimumtests of 25 transactions as a means of assessing control risk. In your tests, you discover thefollowing exceptions:1. One invoice was paid twice. The second payment was supported by a duplicate copyof the invoice. Both copies of the invoice were marked “paid.”2. Two items in the acquisitions journal were misclassified.3. Three invoices were not initialed by the controller, but there were no dollarmisstatements evident in the transactions.4. Five receiving reports were recorded in the acquisitions journal at least 2 weekslater than their date on the receiving report.5. Two receiving reports for vendors’ invoices were missing from the transactionpackets. One vendor’s invoice had an extension error, and the invoice was initialedthat the amount had been checked.6. One check amount in the cash disbursements journal was for $100 less than theamount stated on the vendor’s invoice.7. One voided check was missing.a. Identify whether each of 1 through 7 is a control test deviation, a monetary misstatement, or both.b. For each exception, identify which transaction-related audit objective was not met.c. What is the audit importance of each of these exceptions?d. What follow-up procedures would you use to determine more about the nature ofeach exception?
In testing cash disbursements for the Jay Klein Company,
you obtained an understanding of internal control. The controls are reasonably good,
and no unusual audit problems arose in previous years.
Although there are not many individuals in the accounting department, there is a
reasonable separation of duties in the organization. There is a separate purchasing agent
who is responsible for ordering goods and a separate receiving department that counts
the goods when they are received and prepares receiving reports. There is a separation
of duties between recording acquisitions and cash disbursements, and all information
is recorded in the two journals independently. The controller reviews all supporting
documents before signing the checks, and he immediately mails the checks to the vendors.
Check copies are used for subsequent recording.
All aspects of internal control seem satisfactory to you, and you perform minimum
tests of 25 transactions as a means of assessing control risk. In your tests, you discover the
following exceptions:
1. One invoice was paid twice. The second payment was supported by a duplicate copy
of the invoice. Both copies of the invoice were marked “paid.”
2. Two items in the acquisitions journal were misclassified.
3. Three invoices were not initialed by the controller, but there were no dollar
misstatements evident in the transactions.
4. Five receiving reports were recorded in the acquisitions journal at least 2 weeks
later than their date on the receiving report.
5. Two receiving reports for vendors’ invoices were missing from the transaction
packets. One vendor’s invoice had an extension error, and the invoice was initialed
that the amount had been checked.
6. One check amount in the cash disbursements journal was for $100 less than the
amount stated on the vendor’s invoice.
7. One voided check was missing.
a. Identify whether each of 1 through 7 is a control test deviation, a monetary misstatement, or both.
b. For each exception, identify which transaction-related audit objective was not met.
c. What is the audit importance of each of these exceptions?
d. What follow-up procedures would you use to determine more about the nature of
each exception?
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