Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN: 9781337619455
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: Cengage Learning
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Question
Chapter 5, Problem 35CYBK
To determine
Introduction: Audit evidence is the proof that an auditor tries to seek from an organization in order to claim that the assertions related to financial transactions are correct.
The true statement regarding the design of control to credit limits.
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Assume you are considering an entity’s internal controls over credit sales and cash collection. System documentation was accomplished through a questionnaire and written narratives and, in conjunction with a transaction walk-through, revealed the following potential weaknesses in internal control, some of which, depending on their severity, could prompt you to set control risk at the maximum.
a. New customers are not approved before ordered good are shipped.
b. Sales prices vary from customer to custom.
c. No approval is required for returned goods from customers.
d. Subsidiary accounts receivable records do not always agree with the general ledger control account.
e. Blank checks are left unprotected in an unlocked safe.
Required: For each potential weakness,
indicate a control or controls that management could implement to reduce the likelihood of errors or frauds.
Case 4 (Adapted)
During your audit of Grace Company’s December 31, 2013 financial…
Which of the following best represents a key control for ensuring sales are properlyauthorized when assessing control risks for sales?
A. The separation of duties between the billing department and the cash receipts approval department.
B. The use of an approved price list to determine unit selling price.
C. Copies of approved sales orders sent to shipping, billing, and accounting departments.
D. Sales orders are sent to the credit department for approval.
The control procedure “credit sales approved by credit department” is directed toward which assertion?a. Existence/Occurrence.b. Completeness.c. Valuation/Accuracy.d. Cutoff.
Chapter 5 Solutions
Auditing: A Risk Based-Approach (MindTap Course List)
Ch. 5 - Prob. 1CYBKCh. 5 - Prob. 2CYBKCh. 5 - Prob. 3CYBKCh. 5 - Prob. 4CYBKCh. 5 - Prob. 5CYBKCh. 5 - Prob. 6CYBKCh. 5 - Prob. 7CYBKCh. 5 - Prob. 8CYBKCh. 5 - Prob. 9CYBKCh. 5 - Prob. 10CYBK
Ch. 5 - Prob. 11CYBKCh. 5 - Prob. 12CYBKCh. 5 - Prob. 13CYBKCh. 5 - Prob. 14CYBKCh. 5 - Prob. 15CYBKCh. 5 - Which of the following accounts would not be...Ch. 5 - Prob. 17CYBKCh. 5 - Prob. 18CYBKCh. 5 - Prob. 19CYBKCh. 5 - Which management assertion is usually most...Ch. 5 - Prob. 21CYBKCh. 5 - Prob. 22CYBKCh. 5 - Prob. 23CYBKCh. 5 - Prob. 24CYBKCh. 5 - Prob. 25CYBKCh. 5 - Prob. 26CYBKCh. 5 - Prob. 27CYBKCh. 5 - Prob. 28CYBKCh. 5 - Prob. 29CYBKCh. 5 - Prob. 30CYBKCh. 5 - Prob. 31CYBKCh. 5 - Prob. 32CYBKCh. 5 - Prob. 33CYBKCh. 5 - Prob. 34CYBKCh. 5 - Prob. 35CYBKCh. 5 - Prob. 36CYBKCh. 5 - Prob. 37CYBKCh. 5 - Prob. 38CYBKCh. 5 - Prob. 39CYBKCh. 5 - Prob. 40CYBKCh. 5 - Prob. 41CYBKCh. 5 - Prob. 42CYBKCh. 5 - Prob. 43CYBKCh. 5 - Prob. 44CYBKCh. 5 - Prob. 45CYBKCh. 5 - Prob. 46CYBKCh. 5 - Prob. 47CYBKCh. 5 - Prob. 48CYBKCh. 5 - Prob. 1RQSCCh. 5 - Prob. 2RQSCCh. 5 - Prob. 3RQSCCh. 5 - Prob. 4RQSCCh. 5 - Prob. 5RQSCCh. 5 - Prob. 6RQSCCh. 5 - Professional guidance indicates that the auditor...Ch. 5 - Identify the accounts associated with the...Ch. 5 - Assume that an organization asserts that it has...Ch. 5 - Prob. 10RQSCCh. 5 - Prob. 11RQSCCh. 5 - Prob. 12RQSCCh. 5 - Prob. 13RQSCCh. 5 - List factors that might affect an audit firm’s...Ch. 5 - Prob. 15RQSCCh. 5 - Prob. 16RQSCCh. 5 - Prob. 17RQSCCh. 5 - Prob. 18RQSCCh. 5 - Prob. 19RQSCCh. 5 - Prob. 20RQSCCh. 5 - Prob. 21RQSCCh. 5 - Prob. 22RQSCCh. 5 - Prob. 23RQSCCh. 5 - Prob. 24RQSCCh. 5 - Prob. 25RQSCCh. 5 - Prob. 26RQSCCh. 5 - Prob. 27RQSCCh. 5 - Prob. 28RQSCCh. 5 - Prob. 29RQSCCh. 5 - Prob. 30RQSCCh. 5 - Prob. 32RQSCCh. 5 - Prob. 33RQSCCh. 5 - Prob. 34RQSCCh. 5 - Prob. 35RQSCCh. 5 - Prob. 36RQSCCh. 5 - Prob. 37RQSCCh. 5 - Prob. 38RQSCCh. 5 - Prob. 39RQSCCh. 5 - Prob. 40RQSCCh. 5 - Prob. 42RQSCCh. 5 - Prob. 43RQSCCh. 5 - Prob. 44FF
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Similar questions
- Which of the following would not be a control in a sales system? a. Agreeing details from the sales order when preparing the goods to be dispatched to the customer b. Batch totals required when inputting sales invoices onto the system c. Approval of credit limits for new customers from a manager before being allowed credit d. The sales clerk alone deciding whether to give discounts or not to customers without approvalarrow_forwardExplain the importance of proper credit approval for sales. Whateffect do adequate controls in the credit function have on the auditor’s evidence accumulation?arrow_forwardFor what reasons is it a wise policy to keep credit appraisal and sanctioning from the work out function? Explain clearly, in points. No plagiarism.arrow_forward
- Using a bpmn modelling tool, model the control flow of a business process for modelling credit risk? the process starts when a new credit request is received. A risk management officer checks the levels of the application. If the risk is above a threshold, an advanced risk assessment needs to be carried out, otherwise a simple assessment will suffice. Once the assessment has been completed, the customer is notified with the assessment result while the disbursement is arranged. Fir simplicity, assume that the result of an assessment is always positivearrow_forward1. The primary objective of internal controls in the expenditure cycle is to: A. Ensure the accuracy and completeness of financial transactions B. Streamline the procurement process C. Minimize the cost of purchases D. Increase the speed of payment processing 2. An example of a preventive control in the expenditure cycle is: A.Requiring management approval for large purchases B. Regular inventory counts C. Using firewalls and intrusion detection systems D. Conducting vendor audits 3. Which of the following is an example of a processing control in the expenditure cycle? A. Document sequencing B. Reconciling the bank statement C. Physical controls over inventory D. Approval of vendor invoices 4. Purchase orders are used to initiate a payment in the disbursement cycle.True False 5. An automated approval workflow for payment processing eliminates the need for managerial oversight and authorization. True or Falsearrow_forwardWhich of the following is desirable in a good system of internal accounting controls? Select one: O O O a. Develop plans and budgets b. Encourage employee collusion c. Maintain adequate accounting records d. Two of the above e. None of the abovearrow_forward
- S1. Operational risk, as opposed to efficiency, is the risk of loss resulting from inadequate internal processes, people, and systems or from external events. S2. FS audit is concerned on to see that the credit control has been strictly followed while operational audit is concerned on to study the credit control system for suggesting better measures as necessary. Which of the following statements is/are false?arrow_forwardWhich of the following is an internal control activity that could prevent a paid disbursement voucher from being presented for payment a second time?a. Vouchers should be prepared by individuals who are responsible for signing disbursement checks.b. Disbursement vouchers should be approved by at least two responsible management officials.c. The date on a disbursement voucher should be within a few days of the date the voucher is presented for payment.d. The official who signs the check should compare the check with the voucher and should stamp “PAID” on the voucher documents.arrow_forward1. Which of the following is an example of an input control in the expenditure cycle? a. Physical controls over inventory b. Reconciling the bank statement c. Document sequencing d. Access controls over the purchasing system 2. A control procedure that helps prevent duplicate payments is: a. Performing physical inventory counts b. Matching purchase orders, receiving reports, and vendor invoices c. Reconciling bank statements d. Conducting vendor audits 3.Which of the following is an example of an independent verification control in the expenditure cycle? a. Document sequencing b. Reconciling the bank statement c. Segregation of duties d. Physical controls over inventoryarrow_forward
- If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries, then financial intermediaries face the problem of a. costly state verification. b. free-riding. O c. moral hazard. O d. adverse selection.arrow_forwardYou are developing the policies and procedures in relation to credit sales. What processes would you include in relation to preparing invoices, preparing journal entries for these invoices, authorising these journal entries and filing invoices for auditing purposesarrow_forwardA company is trying to set up proper internal controls for their accounts payable/inventory purchasing system. Currently the purchase order is generated by the same person who receives the inventory. Together the purchase order and the receiving ticket are sent to accounts payable for payment. What changes would you make to improve the internal control structure? Group of answer choices 1.The person in accounts payable should generate the purchase order. 2.The person in accounts payable should generate the receiving ticket once the invoice from the supplier is received. 3.No changes would be made since the person paying the bills is different from the person ordering the inventory. 4.The responsibilities of generating the purchase order and receiving the inventory should be separated among two different people.arrow_forward
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