Situation CAIN Corp generally has good control policies and activities related to authorization of transactions for accounting entry, and the accounting manual has instructions for recording sales transactions in the proper accounting period. The company regularly closes the accounting process each Friday at 5pm to prepare weekly management reports. The year-end date (cut-off date) is December 31, and this year, December 31 was a Monday. However, the accounting was performed through Friday as usual, and the accounts were closed for the year on January 4. Paper Trail All the entries were properly dated after December 31, including the sales invoices, cash receipts and shipping documents. However, the trial balance from which the financial statements were prepared was dated December 31. Nobody noticed the slip of a few days because the Friday closing was normal. Amount CAIN reported sales of P672,000 and gross profit of P268,800 over the January 1-4 period. Cash collections on customers' accounts were recorded in the amount of P800,000. Required: Identify the problem. Prepare a write-up on your recommended audit approach to the problem. The approach should indicate a. audit objective (related to assertion/s for which evidence needs to be obtained) b. controls (control activities that should be used in the organization to prevent and detect errors and frauds) c. test of controls (procedures designed to produce evidence about the effectiveness of the controls that should be in operation) d. audit of balances (substantive procedures designed to find signs of errors/frauds in account balances and classes of transactions)
Situation CAIN Corp generally has good control policies and activities related to authorization of transactions for accounting entry, and the accounting manual has instructions for recording sales transactions in the proper accounting period. The company regularly closes the accounting process each Friday at 5pm to prepare weekly management reports. The year-end date (cut-off date) is December 31, and this year, December 31 was a Monday. However, the accounting was performed through Friday as usual, and the accounts were closed for the year on January 4. Paper Trail All the entries were properly dated after December 31, including the sales invoices, cash receipts and shipping documents. However, the trial balance from which the financial statements were prepared was dated December 31. Nobody noticed the slip of a few days because the Friday closing was normal. Amount CAIN reported sales of P672,000 and gross profit of P268,800 over the January 1-4 period. Cash collections on customers' accounts were recorded in the amount of P800,000. Required: Identify the problem. Prepare a write-up on your recommended audit approach to the problem. The approach should indicate a. audit objective (related to assertion/s for which evidence needs to be obtained) b. controls (control activities that should be used in the organization to prevent and detect errors and frauds) c. test of controls (procedures designed to produce evidence about the effectiveness of the controls that should be in operation) d. audit of balances (substantive procedures designed to find signs of errors/frauds in account balances and classes of transactions)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Situation
CAIN Corp generally has good control policies and activities related to authorization
of transactions for accounting entry, and the accounting manual has instructions for
recording sales transactions in the proper accounting period. The company regularly closes
the accounting process each Friday at 5pm to prepare weekly management reports. The
year-end date (cut-off date) is December 31, and this year, December 31 was a Monday.
However, the accounting was performed through Friday as usual, and the accounts were
closed for the year on January 4.
Paper Trail
All the entries were properly dated after December 31, including the sales invoices,
cash receipts and shipping documents. However, the trial balance from which the financial
statements were prepared was dated December 31. Nobody noticed the slip of a few days
because the Friday closing was normal.
Amount
CAIN reported sales of P672,000 and gross profit of P268,800 over the January 1-4
period. Cash collections on customers' accounts were recorded in the amount of P800,000.
Required:
Identify the problem. Prepare a write-up on your recommended audit approach to the
problem. The approach should indicate
a. audit objective (related to assertion/s for which evidence needs to be obtained)
b. controls (control activities that should be used in the organization to prevent and
detect errors and frauds)
c. test of controls (procedures designed to produce evidence about the effectiveness
of the controls that should be in operation)
d. audit of balances (substantive procedures designed to find signs of errors/frauds
in account balances and classes of transactions)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education