Related questions
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
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- Nonearrow_forwardSee photoarrow_forwardFor each of the following independent situations, indicate whether there is an apparent internal control weakness, and, if one exists, suggest alternative procedures to eliminate the weakness. 1. John Smith is the petty cash custodian. John approves all requests for payment out of the $200 fund, which is replenished at the end of each month. At the end of each month, John submits to his supervisor a list of all accounts and amounts to be charged, along with supporting documentation. Once the supervisor indicates approval, a check is written to replenish the fund for the total amount. John's supervisor performs surprise counts of the fund to ensure that the cash and/or receipts equal $200 at all times. 2. All of the company's cash disbursements are made by check. Each check must be supported by an approved voucher, which is in turn supported by the appropriate invoice and, for purchases, a receiving document. The vouchers are approved by Dean Leiser, the chief accountant, after…arrow_forward
- Upper Limit on Misstatements Calculation: Monetary Unit Sampling. The auditorsmailed positive confirmations on 60 customers’ accounts receivable balances. The company’saccounts receivable balance comprised 2,356 customer accounts with a total recorded balanceof $19,600,000, and the sampling interval was $280,000. The auditors received four positiveconfirmation returns reporting exceptions. Upon follow-up, they found the following:∙ Account 2333. Recorded balance $8,345. The account was overstated by $1,669 becausethe client made an arithmetic mistake recording a credit memo. The company issued only86 credit memos during the year. The auditors examined all of them for the same arithmetic mistake and found no similar misstatements.∙ Account 363. Recorded balance $7,460. The account was overstated by $1,865 because thecompany sold merchandise to a customer with payment due in six months plus 15 percentinterest. The billing clerk made a mistake and recorded the sales price and the…arrow_forwardTaylor, a CPA, has been engaged to audit the financial statements of University Books, Incorporated. University Books maintains a large cash fund exclusively for the purpose of buying used books from students for cash. The cash fund is active all year because the nearby university offers a large variety of courses with varying starting and completion dates throughout the year. Receipts are prepared for each purchase. Reimbursement vouchers periodically are submitted to replenish the fund. Required:Construct an internal control questionnaire to be used in evaluating the internal control over University Books’ repurchasing process using the revolving cash fund. The internal control questionnaire should elicit a yes or no response to each question. Do not discuss the internal controls over books that are purchased from publishers.arrow_forwardThe information below was taken from the bank transfer schedule prepared during the audit of Fox Co.'s financial statements for the year ended December 31, 2005. Assume all checks are dated and issued on December 30, 2005. Check No. 101 202 303 404 Bank Accounts From National Federal County State Federal American Dec. 31 State Republic Jan. 2 To Disbursement Date Per Books Per Bank Dec. 30 Jan. 4 Jan. 2 Jan. 3 Jan. 3 Jan. 2 Receipt Date Per Books Dec. 30 Dec. 30 Jan. 2 Jan. 2 Per Bank Jan. 3 Dec. 31 Which of the following checks illustrate deposits/transfers in transit at December 31, 2005? Jan. 2 Dec. 31arrow_forward
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