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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Question
Chapter 10, Problem 34DQP
a.
To determine
Identify the type of fraud risks for the given
- a.
To determine
Identify the related accounts affected by the potential fraud misstatement.
c.
To determine
Identify the related audit objective(s).
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The following audit procedures are included in the auditprogram because of heightened risks of material misstatements due to fraud.1. Use audit software to search cash disbursement master files for missing check numbers.2. Search the accounts receivable master file for account balances with missing orunusual customer numbers (e.g., “99999”).3. Use audit software to create a list of all credits to the repair and maintenanceexpense account for follow-up testing.4. Engage an actuarial specialist to examine management’s assumptions about averagelength of employment and average life expectancy of retirees used in pension accounting decisions.5. Send confirmations to customers for large sales transactions made in the fourth quarterof the year to obtain customer responses about terms related to the transfer of titleand ability to return merchandise.6. Use audit software to search purchase transactions to identify any with nonstandard vendor numbers or with vendor names reflecting related…
ased on an assessment of audit risk, the auditors are concerned with the following two risks:
The risk that that the client might be making duplicate payments to vendors.
The risk that the client’s accounting clerk might be making unauthorized payments to himself.
Required:
a. Assuming that the client has a manual accounting system, describe how the auditors can design a test to identify the duplicate payments and unauthorized payments.
b. Assuming that the client has an IT accounting system, describe how the auditors might use data analytic software to design a test to identify the duplicate payments and the unauthorized payments.
b. Assuming that the client has an IT accounting system, describe how the auditors might use data analytic software to design a test to identify the duplicate payments and the unauthorized payments.
Quesion 1:
The following are various potential misstatements due to errors or fraud (1 through 7), and a list of auditing procedures (a. through h.) the auditor would con- sider performing to gather evidence
to determine whether the error or fraud is present possible Misstatements Due to errors or Fraud
1. The auditor suspects that a lapping scheme exists because an accounting department employee who has access to cash receipts also maintains the accounts receivable led- ger and refuses to take any vacation or sick days.
2. The auditor suspects that the entity is inappropriately increasing the cash reported on its balance sheet by drawing a check on one account and not recording it as an outstanding check on that account and simultaneously recording it as a deposit in a second account.
3. The entity’s cash receipts of the first few days of the subsequent year were properly deposited in its general operating account after the year-end. However, the auditor suspects that the entity…
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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- In an audit of cash receipts, fraud detection is often a primary focus. It's up to the auditor to decide whether this is consistent or not with their responsibilities. Explain.arrow_forwardBased on an assessment of audit risk, the auditors are concerned with the following two risks: The risk that that the client might be making duplicate payments to vendors. The risk that the client’s accounting clerk might be making unauthorized payments to himself. Required: a. Assuming that the client has a manual accounting system, describe how the auditors can design a test to identify the duplicate payments and unauthorized payments. b. Assuming that the client has an IT accounting system, describe how the auditors might use data analytic software to design a test to identify the duplicate payments and the unauthorized payments. c. Describe the advantages of using data analytics software to identify unusual transactions or entries.arrow_forwardThe 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 Fraud1. Customer checks are properly credited to customer accounts and are properlydeposited, but errors are made in recording receipts in the cash receipts journal.2. Customer checks are misappropriated before being forwarded to the cashier fordeposit.3. Customer checks are received for less than the customers’ full account balances, butthe customers’ full account balances are credited.4. Customer checks are credited to incorrect customer accounts.5. Different customer accounts are each credited for the same cash receipt.Internal Controlsa. Customer orders are compared with an approved customer list.b. Prenumbered credit memos are used for granting credit for returned goods.c. Remittance advices are separated from the checks in the mailroom and forwarded tothe accounting department.d. The cashier…arrow_forward
- Sandol Corporation has numerous customers. A customer file is kept on disk storage. Each customer file contains name, address, credit limit, and account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded. The best procedure for the auditor to follow would be to: a. Develop test data that would cause some account balances to exceed the credit limit and determine if the system properly detects such situations. O b. Request a printout of a sample of account balances so they can be individually checked against the credit limits. c. Request a printout of all account balances so they can be manually checked against the credit limits. O d. Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit.arrow_forwardWhich among the following types of audit evidence can be considered the most reliable? a.Verbal reply from management that the accounts receivable are fairly presented. b.Sales invoice with alteration submitted to the audit team by the company that has weak internal control. c.Photocopy of the building insurance document. d.Confirmation of cash balance directly obtained by the audit team leader from the bank.arrow_forwardWhen an audit team does not receive a response on a positive accounts receivable confirmation, auditors should do all of the following excepta. Send a second request.b. Do nothing for immaterial balances.c. Examine shipping documents.d. Examine client correspondence files.arrow_forward
- Audit documentation often includes a client-prepared, aged trial balance of accounts receivable as of the balance sheet date. The audit team uses this aging primarily toa. Evaluate internal control over credit sales.b. Test the accuracy of recorded charge sales.c. Estimate credit losses.d. Verify the existence of the recorded receivables.arrow_forwardDuring the confirmation of accounts receivable, an auditor receives a confirmation via the client’s fax machine. Which of the following actions should the auditor take?a. Not accept the confirmation and select another customer’s balance to confirm.b. Not accept the confirmation and treat it as an exception.c. Accept the confirmation and file it in the working papers.d. Accept the confirmation but verify the source and content through a telephone call to the respondent.arrow_forwardTo gather audit evidence related to accounts receivable, the client should mail the confirmation requests. TRUE OR FALSE? WHY?arrow_forward
- As the manager of the external audit team, you realize that the embedded audit module only writes material invoices to the audit file for the accounts receivable confirmation process. You are immediately concerned that the accounts receivable account may be substantially overstated this year and for the prior years in which this EAM was used.RequiredExplain why you are concerned because all ‘‘material’’ invoices are candidates for confirmation by the customer. Outline a plan for determining if the accounts receivable are overstated.arrow_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_forwardThe following are audit procedures from different transaction cycles:1. Examine duplicate copy of shipping documents for evidence that quantities wereverified before shipment.2. Select a sample of payroll checks and agree hours to employee time records.3. Use audit software to foot and cross-foot the sales journal and trace the balance tothe general ledger.4. Examine voucher packages and related vendor invoices for evidence of approval ofaccount classification.5. Trace a sample of shipping documents to entry in the sales journal.6. Examine a sample of warehouse removal slips for signature of authorized official.7. Select a sample of entries in the cash receipts journal and trace to posting in individualcustomer accounts receivable records.8. Select a sample of sales invoices and agree prices to the approved price list.a. For each audit procedure, identify whether it is a test of control or a substantive testof transactions.b. For each audit procedure, identify the transaction-related…arrow_forward
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