Q2. The following are a list of possible errors or fraud (1 through 5) involving cash receipts and controls (a through g) that may prevent or detect the errors or fraud: Possible Errors or Fraud Customer checks are properly credited to customer accounts and are properly deposited, but errors are made in recording receipts in the cash receipts journal. Customer checks are misappropriated before being forwarded to the cashier for deposit. Customer checks are received for less than the customers’ full account balances, but the customers’ full account balances are credited. Customer checks are credited to incorrect customer accounts. Different customer accounts are each credited for the same cash receipt. Internal Controls Customer orders are compared with an approved customer list. Prenumbered credit memos are used for granting credit for returned goods. Remittance advices are separated from the checks in the mailroom and forwarded to the accounting department. The cashier examines each check for proper endorsement. Total amounts posted to the accounts receivable subsidiary records from remittance advices are compared with the validated bank deposit slip. Monthly statements are mailed to customers with outstanding balances. An employee, other than the bookkeeper, periodically prepares a bank reconciliation. Required: For each error or fraud, select one internal control that if properly designed and implemented, most likely would be effective in preventing or detecting the errors and fraud. Each response in the list of controls may be used once, more than once, or not at all
Q2. The following are a list of possible errors or fraud (1 through 5) involving cash receipts and controls (a through g) that may prevent or detect the errors or fraud:
Possible Errors or Fraud
Customer checks are properly credited to customer accounts and are properly deposited, but errors are made in recording receipts in the cash receipts journal.
Customer checks are misappropriated before being forwarded to the cashier for deposit.
Customer checks are received for less than the customers’ full account balances, but the customers’ full account balances are credited.
Customer checks are credited to incorrect customer accounts.
Different customer accounts are each credited for the same cash receipt.
Internal Controls
Customer orders are compared with an approved customer list.
Prenumbered credit memos are used for granting credit for returned goods.
Remittance advices are separated from the checks in the mailroom and forwarded to the accounting department.
The cashier examines each check for proper endorsement.
Total amounts posted to the
Monthly statements are mailed to customers with outstanding balances.
An employee, other than the bookkeeper, periodically prepares a bank reconciliation.
Required: For each error or fraud, select one internal control that if properly designed and implemented, most likely would be effective in preventing or detecting the errors and fraud. Each response in the list of controls may be used once, more than once, or not at all.
Q3. For the audit of Carbald Supply Company, Carole Wever, CPA, is conducting a test of sales for 9 months of the year ended December 31, 2011. Included among her
Foot and cross-foot the sales journal and trace the balance to the general ledger.
Review all sales transactions for reasonableness.
Select a sample of recorded sales from the sales journal and trace the customer name and amounts to duplicate sales invoices and the related shipping document.
Select a sample of shipping document numbers and perform the following tests:
Trace the shipping document to the related duplicate sales invoice.
Examine the duplicate sales invoice to determine whether copies of the shipping document, shipping order, and customer order are attached.
Examine the shipping order for an authorized credit approval.
Examine the duplicate sales invoice for an indication of internal verification of quantity, price, extensions, footings, and trace the balance to the accounts receivable master file.
Compare the price on the duplicate sales invoice with the approved price list and the quantity with the shipping document.
Trace the balance in the duplicate sales invoice to the sales journal and accounts receivable master file for customer name, amount, and date.
Required:
For which of these procedures can audit sampling for exceptions be conveniently used?
Considering the audit procedures Wever developed, what is the most appropriate sampling unit for conducting most of the audit sampling tests?
Set up a sampling data sheet using attributes or non-statistical sampling. For all tests of controls, assume a TER rate of 5% and an EPER of 1%. For all substantive tests of transactions, use a 4% TER and a 0% EPER.
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