Required: When evaluating internal control design effectiveness during the internal control over financial reporting, the audit team must determine whether controls have been put in place for each relevant assertion about each significant account. For each relevant assertion, the audit team must determine the points in the process where a misstatement might occur and then determine if a control activity has been put in place to mitigate the risk of material misstatement for each relevant assertion. For each of the possible misstatements identified below, please select the appropriate financial statement assertion: Possible Misstatement/Risk a. Revenue is overstated because the controller created fraudulent invoices and recorded them. b. Revenue is understated because the accountant closed the sales cycle a week early to go on vacation. c. Accounts Receivable is overstated because the accounts receivable clerk forgot to apply available discounts. d. Accounts Receivable is overstated because sales are falsified. e. Travel expense is overstated because the sales force charged personal expenses on their corporate credit card. f. Accounts Payable is understated because the office manager lost an invoice for supplies received so it was never recorded. g. The cash balance is understated because funds held in Japan were converted to $USD at the wrong rate. h.Cash is overstated because the treasurer is stealing from the company. i. Inventory is overstated because it is held on consignment but included in the inventory balance. j. The cost of goods sold is understated because time sheets have not been submitted for each job k. Long Term Debt is overstated due to misclassification by management. Relevant Assertions
Required: When evaluating internal control design effectiveness during the internal control over financial reporting, the audit team must determine whether controls have been put in place for each relevant assertion about each significant account. For each relevant assertion, the audit team must determine the points in the process where a misstatement might occur and then determine if a control activity has been put in place to mitigate the risk of material misstatement for each relevant assertion. For each of the possible misstatements identified below, please select the appropriate financial statement assertion: Possible Misstatement/Risk a. Revenue is overstated because the controller created fraudulent invoices and recorded them. b. Revenue is understated because the accountant closed the sales cycle a week early to go on vacation. c. Accounts Receivable is overstated because the accounts receivable clerk forgot to apply available discounts. d. Accounts Receivable is overstated because sales are falsified. e. Travel expense is overstated because the sales force charged personal expenses on their corporate credit card. f. Accounts Payable is understated because the office manager lost an invoice for supplies received so it was never recorded. g. The cash balance is understated because funds held in Japan were converted to $USD at the wrong rate. h.Cash is overstated because the treasurer is stealing from the company. i. Inventory is overstated because it is held on consignment but included in the inventory balance. j. The cost of goods sold is understated because time sheets have not been submitted for each job k. Long Term Debt is overstated due to misclassification by management. Relevant Assertions
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Required:
When evaluating internal control design effectiveness during the internal control over financial reporting, the audit team must
determine whether controls have been put in place for each relevant assertion about each significant account. For each relevant
assertion, the audit team must determine the points in the process where a misstatement might occur and then determine if a control
activity has been put in place to mitigate the risk of material misstatement for each relevant assertion. For each of the possible
misstatements identified below, please select the appropriate financial statement assertion:
Possible Misstatement/Risk
a. Revenue is overstated because the controller created
fraudulent invoices and recorded them.
b. Revenue is understated because the accountant closed the
sales cycle a week early to go on vacation.
c. Accounts Receivable is overstated because the accounts
receivable clerk forgot to apply available discounts.
d. Accounts Receivable is overstated because sales are falsified.
e. Travel expense is overstated because the sales force charged
personal expenses on their corporate credit card.
f. Accounts Payable is understated because the office manager
lost an invoice for supplies received so it was never recorded.
g. The cash balance is understated because funds held in Japan
were converted to $USD at the wrong rate.
h.Cash is overstated because the treasurer is stealing from the
company.
i. Inventory is overstated because it is held on consignment but
included in the inventory balance.
j. The cost of goods sold is understated because time sheets have
not been submitted for each job
k. Long Term Debt is overstated due to misclassification by
management.
Relevant Assertions
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