Auditing and Assurance Services (16th Edition)
16th Edition
ISBN: 9780134065823
Author: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan
Publisher: PEARSON
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Chapter 10, Problem 33DQP
a, b and c
To determine
Identify the type of fraud and the control procedure for that type of fraud.
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Sadaf Oman Co. is using internal control procedures to mitigate the risks to which it is exposed. Listed below are some internal control procedures applicable to Sadaf Oman Co's revenues and receivable system. Match the most appropriate one of the following risks mitigated to the correct internal control procedure stated below. Risks mitigated: (A) Sales staff misappropriate sales receipts then write off bad debts in the general ledger (B) Sales are made to customers who cannot pay (C) Sales are not made to existing customers (D) Sales staff do not communicate with the accounts staff regularly, so the debt uncollected at the end of the period are written off in the ledger by the accounts staff (E) Customer refuses to pay for goods allegedly not received (F) Customer orders are not being fulfilled. (G) Revenues on books are overstated and exceed actual revenues in bank (H) Posting a sale that is beyond the credit limit of the customers ) Company employees steal collections (U) Without…
1. What does it mean to say that internal control has limitations and what are these limitations?
2. Provide an appropriate response based on the following scenarios.
Assume that the accounting clerk posts a customer’s payment for the wrong amount, giving the customer credit for less than he or she actually paid. How will this error be detected? How might this error have been prevented?
Assume that the employee who opens the mail steals a customer payment. How will this theft be detected? How might this theft have been prevented?
3. What is petty cash and what purpose(s) does it serve?
4. What types of controls should be in place to make sure people in the office don't just take from petty cash (for their own personal use) whenever they feel like it? In your opinion, what is an appropriate amount to have in petty cash?
5. Prepare the necessary journal entries for each of the following:
(a) On March 1, issued a check to establish a petty cash fund of $1,410
(b)…
Assume that brooke miles accounts payable clerk for west coast design inc.stole $48,350 by paying fictitious companies and cashed the checks at a local banks. Describe a control procedure that would have prevented or detected the fraud?
Chapter 10 Solutions
Auditing and Assurance Services (16th Edition)
Ch. 10 - Prob. 1RQCh. 10 - Define misappropriation of assets and give two...Ch. 10 - Prob. 3RQCh. 10 - Prob. 4RQCh. 10 - Prob. 5RQCh. 10 - Prob. 6RQCh. 10 - Prob. 7RQCh. 10 - Prob. 8RQCh. 10 - Prob. 9RQCh. 10 - Prob. 10RQ
Ch. 10 - Prob. 11RQCh. 10 - Prob. 12RQCh. 10 - Prob. 13RQCh. 10 - Prob. 14RQCh. 10 - Prob. 15RQCh. 10 - Prob. 16RQCh. 10 - Prob. 17RQCh. 10 - Prob. 18RQCh. 10 - Prob. 19.1MCQCh. 10 - Prob. 19.2MCQCh. 10 - Prob. 19.3MCQCh. 10 - Prob. 20.1MCQCh. 10 - Prob. 20.2MCQCh. 10 - Prob. 20.3MCQCh. 10 - Prob. 21.1MCQCh. 10 - Prob. 21.2MCQCh. 10 - Prob. 21.3MCQCh. 10 - Prob. 22.1MCQCh. 10 - Prob. 22.2MCQCh. 10 - Prob. 22.3MCQCh. 10 - Prob. 23DQPCh. 10 - Prob. 24DQPCh. 10 - Prob. 25DQPCh. 10 - Prob. 27DQPCh. 10 - Prob. 28DQPCh. 10 - Prob. 29DQPCh. 10 - Prob. 31DQPCh. 10 - Each year near the balance sheet date, when the...Ch. 10 - Prob. 33DQPCh. 10 - Prob. 34DQP
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- Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle? a. Fictitious transactions may be recorded that cause an understatement of revenues and overstatement of receivables b. Claim received from customers for goods returned may be intentionally recorded in other customer’s accounts. c. Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash d. The failure to prepare shipping documents may cause an overstatement of inventory balancesarrow_forwardAn auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all: Multiple Choice Cash disbursements. Approved vouchers. Receiving reports. Vendors' invoices.arrow_forwardWhat is a good response to... 1. Embezzlement can result from: skimming cash, manipulating refunds, or creating fake transactions. It is possible that the coworker could have inflated expenses, recorded false refunds, or pocketed cash from sales without recording them in the system. Another possibility is underreporting sales or voiding transactions and then taking the difference. 2. Using the store’s accounting software, there is the option to analyze transaction logs for unusual activity i.e. high numbers of refunds, voided transactions, or manual adjustments. Cross-checking daily sales reports, register totals, and bank deposits are also another way to identify missing funds. 3. Finding should be reported to the supervisor/store manager and/or loss prevention department. 4. No, I would not confront my coworker as confronting them could jeopardize the investigation and raise tensions with that individual. Instead, I would just relay my finding to management and document when that…arrow_forward
- Which of the following is least indicative of fraudulent activity?a. Numerous cash refunds have been made to different people at the same post office box address.b. Internal auditors cannot locate several credit memos to support reductions of customers’ balances.c. Bank reconciliation has no outstanding checks or deposits older than 15 days.d. Three people were absent the day the auditors handed out the paychecks and have not picked them up four weeks later.arrow_forwardThe Perfect Crime? Consider the following story of an actual embezzlement.This was the ingenious embezzler’s scheme: (a) He hired a print shop to print a private stock of Ajax Company checks in the company’s numerical sequence. (b) In his job as an accounts payable clerk at Ajax, he intercepted legitimate checks written by the accounts payable department and signed by the Ajax treasurer and destroyed them. (c) He substituted thesame numbered check from the private stock, payable to himself in the same amount as the legitimate check, and he “signed” it with a rubber stamp that looked enough like the Ajax Company treasurer’s signature to fool the paying bank. (d) He deposited the money in his own bank account. The bank statement reconciler (a different person) was able to agree the check numbers and amounts listed in the cleared items in the bank statement to the recorded cash disbursement (check number and amount) and thus did not notice the embezzler’s scheme.The embezzler was able to…arrow_forwardWhich of the following internal control activities will most likely prevent the concealment of a cash shortage by improperly writing off a trade account receivable?a. Write-offs must be approved by a responsible officer after review of credit department recommendations and supporting evidence.b. Write-offs must be supported by an aging schedule showing that only receivables overdue several months have been written off.c. Write-offs must be approved by the cashier who is in a position to know whether the receivables have, in fact, been collected.d. Write-offs must be authorized by company field sales employees who are in a position to determine customers’ financial standing.arrow_forward
- Which of the following statements is correct? Select one: a. Account receivable turnover is equal to net credit sales divided by average net accounts receivable. b. Buying aged receivables from businesses and then collects the payments directly from the customers is called Allowance for uncollectible accounts. c. Auto generated document numbers is a fraud preventive method which is more efficient than physical controls. d. If the same people are responsible for a series of related accounting activities is called Segregation of Duties.arrow_forwardThe fraud triangle asserts that the following three factors must exist for a person to commit fraud. A. Opportunity B. Pressure C. Rationalization. Identify the fraud risk factor (A, B, or C) in each of the following situations.arrow_forwardAllison Everhart, an employee in accounts payable, believes she can run a fictitious invoice through the accounts payable system and collect the money. She knows payments are subject to an audit. Which account would be the best place to hide the fraud?a. Inventory.b. Wage expense.c. Consulting service expense.d. Property tax expense.arrow_forward
- What internal control procedure(s) would provide protection against the following threats? a. Theft of goods by the shipping dock workers, who claim that the inventory shortages reflect errors in the inventory records.b. Posting the sales amount to the wrong customer account because a customer account number was incorrectly keyed into the system .c. Making a credit sale to a customer who is already four months behind in making payments on his account. d. Authorizing a credit memo for a sales return when the goods were never actually returned. e. Writing off a customer’s accounts receivable balance as uncollectible to conceal the theft of subsequent cash payments from that customer. f. Billing customers for the quantity ordered when the quantity shipped was actually less due to back ordering of some items .g. Lost sales because of stockouts of several products for which the computer records indicated there was adequate quantity on hand. h. A sales clerk sold a $7,000 wide-screen TV…arrow_forwardRequired: Which internal control(s) would you recommend to prevent the following situations from occurring? Situation a. Authorization of a credit memo for a customer's account (on receivables) when the goods were never actually returned. b. Theft of funds by the cashier, who cashed several checks and did not record their receipt. c. Inventory stolen by receiving dock personnel. The receiving clerk claimed the inventory was sent to the warehouse, but the warehouse clerk did not record properly. d. Writing off a customer's accounts receivable balances as uncollectible in order to conceal the theft of subsequent cash collections. e. Billing customers for the quantity ordered when the quantity shipped was actually less due to back- ordering of some items. Answerarrow_forwardInvestigating a Fraud. Suppose you are auditing cash disbursements and discover severalpayments to a company you are unfamiliar with and cannot find information about this company on the Internet or in the local telephone directory. The invoices from this company have numbers very close to each other in the sequence, there is no phone number on the invoice, and each bill is for a dollar amount just under the amount that would require additional approvals before payment. Based on this information, you now suspect this may be a fraud.Required:Based on your suspicions, how would you change the audit procedures you would perform, and how might you change the evidence you gather?arrow_forward
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