Timing of Test of Controls and Sample Selection. Susan Hill was examining controlsfor the authorization of cash disbursements. She selected cash disbursement entries madethroughout the year and vouched them to paid invoices and canceled checks bearing the initials and signatures of employees authorized to approve the disbursements. She performedthe work on September 30 when the company had issued checks numbered 43921 to 52920.Because 9,000 checks had been issued in nine months, she reasoned that 3,000 more couldbe issued in the three months before the December 31 year-end. About 12,000 checks hadbeen issued last year. She wanted to take one sample of 100 disbursements for the entireyear, so she selected 100 random numbers in the sequence 43921 to 55920. She audited the80 checks in the sample that were issued before September 30, and she held the other 20randomly selected check numbers for later use. She found no deviations in the sample of 80,a finding that, in the circumstances, would cause her to assign a low (20 percent) control riskto the probability that the system would permit improper charges to be recorded in expenseand purchase/inventory accounts.Required:Prepare a memorandum to the audit manager (dated October 1) describing the audit team’soptions with respect to evaluating control performance for the period from October throughDecember
Timing of Test of Controls and Sample Selection. Susan Hill was examining controls
for the authorization of cash disbursements. She selected cash disbursement entries made
throughout the year and vouched them to paid invoices and canceled checks bearing the initials and signatures of employees authorized to approve the disbursements. She performed
the work on September 30 when the company had issued checks numbered 43921 to 52920.
Because 9,000 checks had been issued in nine months, she reasoned that 3,000 more could
be issued in the three months before the December 31 year-end. About 12,000 checks had
been issued last year. She wanted to take one sample of 100 disbursements for the entire
year, so she selected 100 random numbers in the sequence 43921 to 55920. She audited the
80 checks in the sample that were issued before September 30, and she held the other 20
randomly selected check numbers for later use. She found no deviations in the sample of 80,
a finding that, in the circumstances, would cause her to assign a low (20 percent) control risk
to the probability that the system would permit improper charges to be recorded in expense
and purchase/inventory accounts.
Required:
Prepare a memorandum to the audit manager (dated October 1) describing the audit team’s
options with respect to evaluating control performance for the period from October through
December
Step by step
Solved in 2 steps with 5 images
