Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
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Chapter 12, Problem 21QRA
To determine
Point out the weaknesses in the internal control of Company N.
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Carosel Limited is a specialty motor vehicle parts supplier, procuring parts from a large number of suppliers. As part of the interim audit work four weeks prior to the company year’s end, you are testing the procurement/purchases systems, attending the inventory count and examining the sales and cash receipts. Purchasing/Procurement System When the quantity of a specific part falls below re-order level, an e-mail is sent to the procurement department detailing the part required and the quantity to order. Parts inventory is monitored by the store’s manager with a copy of the e-mail filed on the store manager's computer. Procurement department staff check the e-mail, allocate the order to an authorised supplier and send the order to that supplier using Electronic Data Interchange (EDI). The order is identified by a unique order number with a copy of the EDI order filed in the order database by the computer system. When goods are received at Carosel, the stores clerk confirms that…
Carosel Limited is a specialty motor vehicle parts supplier, procuring parts from a large number of suppliers. As part of the interim audit work four weeks prior to the company year’s end, you are testing the procurement/purchases systems, attending the inventory count and examining the sales and cash receipts. Purchasing/Procurement System When the quantity of a specific part falls below re-order level, an e-mail is sent to the procurement department detailing the part required and the quantity to order. Parts inventory is monitored by the store’s manager with a copy of the e-mail filed on the store manager's computer. Procurement department staff check the e-mail, allocate the order to an authorised supplier and send the order to that supplier using Electronic Data Interchange (EDI). The order is identified by a unique order number with a copy of the EDI order filed in the order database by the computer system. When goods are received at Carosel, the stores clerk confirms that…
Carosel Limited is a specialty motor vehicle parts supplier, procuring parts from a large
number of suppliers. As part of the interim audit work four weeks prior to the company
year’s end, you are testing the procurement/purchases systems, attending the inventory count
and examining the sales and cash receipts.
Purchasing/Procurement System
When the quantity of a specific part falls below re-order level, an e-mail is sent to the
procurement department detailing the part required and the quantity to order. Parts
inventory is monitored by the store’s manager with a copy of the e-mail filed on the
store manager's computer.
Procurement department staff check the e-mail, allocate the order to an authorised
supplier and send the order to that supplier using Electronic Data Interchange (EDI).
The order is identified by a unique order number with a copy of the EDI order filed in
the order database by the computer system.
When goods are received at Carosel, the stores clerk confirms that…
Chapter 12 Solutions
Principles Of Auditing & Other Assurance Services
Ch. 12 - Prob. 1RQCh. 12 - Explain the significance of the purchase order to...Ch. 12 - What segregation of duties would you recommend to...Ch. 12 - Prob. 4RQCh. 12 - Prob. 5RQCh. 12 - Prob. 6RQCh. 12 - Prob. 7RQCh. 12 - Prob. 8RQCh. 12 - Prob. 9RQCh. 12 - When perpetual inventory records are maintained,...
Ch. 12 - What is meant by a bill and hold scheme?Ch. 12 - What charges and credits may be disclosed in the...Ch. 12 - Prob. 13RQCh. 12 - Prob. 14RQCh. 12 - A well-prepared balance sheet usually includes a...Ch. 12 - Darnell Equipment Company uses the LIFO method of...Ch. 12 - Prob. 17RQCh. 12 - Prob. 18RQCh. 12 - Prob. 19RQCh. 12 - Prob. 20RQCh. 12 - Prob. 21QRACh. 12 - Prob. 22QRACh. 12 - Prob. 23QRACh. 12 - Prob. 24QRACh. 12 - Prob. 25QRACh. 12 - Prob. 26QRACh. 12 - Prob. 27QRACh. 12 - Grandview Manufacturing Company employs standard...Ch. 12 - Prob. 29AOQCh. 12 - Prob. 29BOQCh. 12 - The document issued by a common carrier...Ch. 12 - Which of the following should be included as a...Ch. 12 - Prob. 29EOQCh. 12 - Prob. 29FOQCh. 12 - Instead of taking a physical inventory count on...Ch. 12 - Prob. 29HOQCh. 12 - Prob. 29IOQCh. 12 - Prob. 29JOQCh. 12 - Prob. 29KOQCh. 12 - Prob. 29LOQCh. 12 - Prob. 30OQCh. 12 - Adapted AICPA Task-Based Simulation For each of...Ch. 12 - Prob. 32OQCh. 12 - Prob. 33OQCh. 12 - Prob. 34AOQCh. 12 - Prob. 34BOQCh. 12 - Prob. 34COQCh. 12 - Prob. 34DOQCh. 12 - Prob. 34EOQCh. 12 - Prob. 35OQCh. 12 - Prob. 36PCh. 12 - Prob. 37PCh. 12 - Prob. 38PCh. 12 - Prob. 39PCh. 12 - Prob. 40PCh. 12 - Prob. 41PCh. 12 - Prob. 42PCh. 12 - Prob. 43ITCCh. 12 - Prob. 44ECCh. 12 - Western Trading Company is a sole proprietorship...
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- The following sales procedures were encountered duringthe annual audit of Marvel Wholesale Distributing Company:Customer orders are received by the sales order department. A clerk computes theapproximate dollar amount of the order and sends it to the credit department for approval.Credit approval is stamped on the order and sent to the accounting department. A computer isthen used to generate two copies of a sales invoice. The order is filed in the customer order file.The customer copy of the sales invoice is held in a pending file awaiting notification thatthe order was shipped. The shipping copy of the sales invoice is routed through the warehouse, and the shipping department has authority for the respective departments to releaseand ship the merchandise. Shipping department personnel pack the order and manuallyprepare a three-copy bill of lading: The original copy is mailed to the customer, the secondcopy is sent with the shipment, and the other is filed in sequence in the bill of…arrow_forwardThe following are commonly performed tests of controls and substantive tests of transactions audit procedures in the sales and collection cycle, acquisition and payment cycle, and inventory and warehousing cycle: Account for a sequence of shipping documents and examine each one to make sure that a duplicate sales invoice is attached. Compare the quantity and description of items on shipping documents with the related duplicate sales invoices. Trace a sample of voucher packages to the acquisitions journal throughout the year to determine that the transaction is included in the acquisitions journal. Determine if the transaction was recorded in the correct month, based on when the goods were received and the terms of the transaction. Required: Identify for each test the related cycle. Identify whether each audit procedure is a test of control or a substantive test of transactions. State which of the six transaction-related audit objectives each of the audit procedures fulfills.arrow_forwardAs you are planning the annual audit of Norton Corporation, you note at the company has a number of user operated computers in use in various locations. One of the machines has been installed in the stores department, which has the responsibility for disbursing stock items and for maintaining stores records. In your audit, you find that one employee receives the requisitions for stores, disburses the stock, maintains the records, operates the computer, and authorizes adjustments to the total amounts of stock recorded by the computer. When you discuss the applicable controls with the department manager, you are told that the user operated computer is assigned exclusively to that department. Therefore, the manager contends that it does not require the same types of controls applicable to large IT systems. b. Discuss five types of control that would apply to this microcomputer application.arrow_forward
- Richard Foster, an assistant auditor, was assigned to the year-end audit work of Sipher Corporation. Sipher is a small manufacturer of language translation equipment. As his first assignment, Foster was instructed to test the cutoff of year-end sales transactions. Because Sipher uses a calendar year-end for its financial statements, Foster began by obtaining the computer-generated sales ledgers and journals for December and January. He then traced ledger postings for a few days before and after December 31 to the sales journals, noting the dates of the journal entries. Foster noted no journal entries that were posted to the ledger in the wrong accounting period. Thus, he concluded that the client’s cutoff of sales transactions was effective. Please explain the validity of Foster’s conclusion.arrow_forwardAs you are planning the annual audit of Norton Corporation, you note that the company has a number of user operated computers in use in various locations. One of the machines has been installed in the stores department, which has the responsibility for disbursing stock items and for maintaining stores records. In your audit, you find that one employee receives the requisitions for stores, disburses the stock, maintains the records, operates the computer, and authorizes adjustments to the total amounts of stock recorded by the computer. When you discuss the applicable controls with the department manager, you are told that the user operated computer is assigned exclusively to that department. Therefore, the manager contends that it does not require the same types of controls applicable to large IT systems. a. Comment on the manager’s contention.arrow_forwardAs part of your annual audit plan, you will be conducting an audit of the Purchases-Payables cycle. And to effectively plan for the audit, you have to document your understanding of the said process using a flowchart. This is also part of your usual planning procedures which will be expected from you by your Audit Manager. As a result of your interviews, observations, understanding of the process’ policies and procedures; you were able to gather the following data: The requests to purchase materials or the Purchase Requisition (PR) are prepared by the Purchasing department which is confirmed by the inventory controllers. These are approved by authorized personnel based on the company’s Approval Matrix. After confirmation of the PR, Purchasing Department will prepare the Purchase Orders (PO). These POs do not undergo further approval as long as supported by approved by PRs. A copy of the PO is sent to the vendor and another copy of the same PO to the Receiving personnel. Another copy…arrow_forward
- As part of your annual audit plan, you will be conducting an audit of the Purchases-Payables cycle. And to effectively plan for the audit, you have to document your understanding of the said process using a flowchart. This is also part of your usual planning procedures which will be expected from you by your Audit Manager. As a result of your interviews, observations, understanding of the process’ policies and procedures; you were able to gather the following data: The requests to purchase materials or the Purchase Requisition (PR) are prepared by the Purchasing department which is confirmed by the inventory controllers. These are approved by authorized personnel based on the company’s Approval Matrix. After confirmation of the PR, Purchasing Department will prepare the Purchase Orders (PO). These POs do not undergo further approval as long as supported by approved by PRs. A copy of the PO is sent to the vendor and another copy of the same PO to the Receiving personnel. Another copy…arrow_forwardYou are auditing a client that supplies electrical products to retail stores and electrical contractors throughout the country.The client keeps its accounts receivable records on a computer system, which is updated at the end of each business day.You plan to audit accounts receivable balance as at the end of the financial year, and you have a generalised audit software (GAS) package available to help in this task.Required:Identify ten (10) substantive audit procedures that you could perform using generalised audit software (GAS) in relation to auditing the accounts receivable account.arrow_forwardYou are the audit senior assigned to the audit of Fix-IT Ltd, a motor vehicle spares company.You obtain an understanding of the warehouse function within the revenue and receipts cycle at Fix-IT Ltd.The warehouse clerk accesses the internal sales order file with all the internal sales orders arranged by order numbers. They will then select the sales order for picking. Identify the type of access that the warehouse clerk should have to the internal sales order file. a. A. Read-only access b. B. Write-only access. C. D. Both write and read access d. C. No accessarrow_forward
- 3) Which of the following audit procedures is a test of control? a. Management providing written instruction to all employees and supervising the monthly inventory stocktake. b. Observing employee compliance with stocktake procedures. c. Picking a sample of goods received notes and ensuring the correct date is recorded in the purchase’s ledger. d. Estimating total sales for a specific product line for the year and comparing actual sales.arrow_forwardYou are working as a summer intern for AAA Auditing, Inc. You have been asked to help resolve discrepancies noted in the audit for Dolfin Corporation, a retailer of specialty aquarium supplies.As a retail company, Dolfin Corporation uses the perpetual inventory system. To prepare for this assignment, you have been asked to review your knowledge of salesand purchase transactions by completing the following table.Consider the effect of each transaction on the three accounts listed, and identify which accounts are debited or credited. If not affected by the transaction, select "No Effect". Inventory Estimated Returns Inventory Cost of Goods Sold Purchase of merchandise for resale Debit Cash sale of merchandise Credit Customer returns Debit Yearly estimate for customer returns Freight paid for merchandise purchased FOB shipping point Debit Return of merchandise purchased for resale Credit Freight paid for sales with FOB destination No Effect Sale on…arrow_forwardRichard Palm is the accounting clerk of Olive Limited. He uses the source documents such as purchaseorders, sales invoices and suppliers’ invoices to prepare journal vouchers for general ledger entries.Each day he posts the journal vouchers to the general ledger and the related subsidiary ledgers. At theend of each month, he reconciles the subsidiary accounts to their control accounts in the generalledger to ensure they balance.Discuss the internal control weaknesses and risks associated with the above processarrow_forward
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