a.
Indicate the type of error or fraud that the control serves to prevent or detect in the given controls.
a.
Explanation of Solution
Internal control:
Internal control is a process of controlling the activities within the organization. Business deals with various set of activities. To perform every activity effectively, the management of the company should control and manage the activities. The control of these activities is known as an internal control.
Error or fraud in the financial statement:
When there is a misstatement of the financial statements of the company because of the intentional and unintentional error then it is known as error or fraud in the financial statement.
Indicate the type of error or fraud that the control serves to prevent or detect in the given controls:
| Control | Error or Fraud Controlled |
| 1 | This activity would provide control over the unauthorized and invalid payment of the accounts payable. |
| 2 | This activity would control over the completeness of the transactions. |
| 3 | This activity would prevent the chances of duplicate transactions. |
b.
Provide the test of control for the provided internal control of the client.
b.
Explanation of Solution
Test of control:
Test of control is performed by the auditor to verify that the control process is effective and efficient enough or not. It consists of the following two activities:
- Test of control recognizes the control process required to prevent the material misstatement.
- Test of control asses that the control process is operating effectively or not.
Provide the test of control for the provided internal control of the client:
| Control | Tests of Controls |
| 1 | The auditor can test the control over the reconciliation by reviewing the |
| 2 | The auditor can test the control by randomly checking the entries in the receiving report. The auditor can randomly pick a few consecutive transactions and consider that their numbers are in sequence. |
| 3 | The auditor should review the mailing register and review the signature for the individual who mailed the checks. |
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Chapter 14A Solutions
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