Please use the link to answer the questions only. The assignment requires you to download a CAFR from a local state or municipality.  We will all use the same CAFR for this assignment.  Please download the 2020 Comprehensive Annual Financial Report for the Town of Cary, North Carolina.  I have picked the Town of Cary because their population is over 100,000 and it is not excessively large, so the CAFR is a reasonable size. 

Click on the link below and then select – 2020 Comprehensive Annual Financial Report.  Download to your computer as we will use this for each of our continuing problems eachweek.  

https://www.townofcary.org/home/showpublisheddocument?id=25355

Chapter 9 

Review the comprehensive annual financial report (CAFR) you obtained.

1.      Indicate the activities accounted for in both internal service funds and major enterprise funds. Comment on whether any of these activities could also have been accounted for in a general or other governmental fund.

2.     How are the internal service fund activities reported in the government‐wide statement of net position? How are they reported in the proprietary funds statement of net position?

3.     Did any of the internal service funds report significant operating surpluses or deficits for the year? Were any accumulated significant net asset balances over the years not invested in capital assets?

4.     Were any of the government’s enterprise funds “profitable” during the year? If so, what has the government done with the “earnings”? Has it transferred them to the general fund?

5.     Does the government have revenue bonds outstanding that are related to business‐type activities? If so, for what activities?

6.     Do the financial statements include a statement of cash flows for proprietary funds? Is the statement on a direct or an indirect basis? In how many categories are the cash flows presented? Which of these categories resulted in net cash inflows? Which resulted in net cash outflows?

7.     What was the total operating income? What was total net cash provided by operating activities? What accounts for the largest difference between these two amounts?

8.    Has the city entered into any service concession arrangements? Which specific ones, and why?

 

Chapter 10

Review the comprehensive annual financial report (CAFR) you obtained.

1.      Does the government maintain any permanent funds? If so, are they major or non-major funds and for what purposes?

2.     Does the government maintain any fiduciary funds? If so, for what purposes?

3.     Does the government contribute to one or more pension plans? Are they defined benefit or defined contribution plans? If they are defined benefit plans, are they single employer (maintained by the government itself) or multiple‐employer plans?

4.     Does the government report pension expenses or expenditures? If so, in which fund or funds?

5.     Does the government report pension liabilities? If so, in which fund or funds?

6.     Does the CAFR indicate the actuarial value of plan assets and liabilities? Are the plans over‐ or underfunded?

7.     Does the CAFR include the financial statements of the pension plans? Does it indicate that the pension plans issue their own reports and that these are publicly available?

8.    Did the pension fund investments have a “good year”?

9.     Does the CAFR indicate that the government provides other postemployment benefits? If so, what is the nature of these benefits? How are they reported?

10.Does the government maintain any custodial funds? How many and for what purposes?

 

 

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Lenter Supply Company is a medium-sized distributor of wholesale hardware supplies in the central Ohio area. It has been a client of yours for several years and has instituted excellent internal controls for sales at your recommendation.

In providing control over shipments, the client has prenumbered “warehouse removal slips” that are used for every sale. It is company policy never to remove goods from the warehouse without an authorized warehouse removal slip. After shipment, two copies of the warehouse removal slip are sent to billing for the computerized preparation of a sales invoice. One copy is stapled to the duplicate copy of a prenumbered sales invoice, and the other copy is filed numerically. In some cases, more than one warehouse removal slip is used for billing one sales invoice. The smallest warehouse removal slip number for the year is 11741 and the largest is 34687. The smallest sales invoice number is 45302 and the largest is 65747.

In the audit of sales, one of the major concerns is the effectiveness of the controls in ensuring that all shipments are billed. You have decided to use audit sampling in testing internal controls.

Required

a.       State an effective audit procedure for testing whether shipments have been billed. What is the sampling unit for the audit procedure?

b.      Assume that you expect no exceptions in the sample but are willing to accept a TER of 4 percent. At a 5 percent ARO, what is the appropriate sample size for the audit test? You may complete this requirement using attributes sampling.

c.       Design a random selection plan for selecting the sample from the population, using either systematic sampling or computer generation of random numbers. Use the sample size determined in part b. If you use systematic sampling, use a random starting point of 11932.

d.      Your supervisor suggests the possibility of performing other sales tests with the same sample as a means of efficiently using your audit time. List two other audit procedures that can conveniently be performed using the same sample, and state the purpose of each of the procedures.

e.       Is it desirable to test the occurrence of sales with the random sample you have designed in part c.? Why or why not?

15-33 (A-E)

The following are auditor judgments and attributes sampling results for six populations. Assume large population sizes.

1

2

3

4

5

6

EPER (in percent)

2

0.5

1

0

2

5

TER (in percent)

6

4

20

3

8

10

ARO (in percent)

10

5

10

5

5

10

Actual sample size

100

100

20

100

60

60

Actual number of exceptions in the sample

2

3

1

1

1

5

Required

a.       For each population, did the auditor select a smaller sample size than is indicated by using the attributes sampling tables in Table 15-8 (p. 519) for determining sample size? What are the implications of selecting either a larger or smaller sample size than those determined using the tables?

b.      Calculate the SER and CUER for each population.

c.       For which of the six populations should the sample results be considered unacceptable? What options are available to the auditor?

d.      Why is analysis of the exceptions necessary even when the populations are considered acceptable?

e.       For the following terms, identify which is an audit decision, a nonstatistical estimate made by the auditor, a sample result, and a statistical conclusion about the population:

1.      EPER

2.      TER

3.      ARO

4.      Actual sample size

5.      Actual number of exceptions in the sample

6.      SER

7.      CUER

 

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To answer the question below here is an example. Please number them as shown

12-22 (A-C)

1 A write out your answer

   B write out your answer

   C write out your answer

 

2. A write out your answer

   B write out your answer

   C write out your answer

12-22 (A-E)

 Each of the following internal controls has been taken from a standard internal control questionnaire used by a CPA firm for assessing control risk in the payroll and personnel cycle.

1.       Human resource policies require an investigation of an employment application from new employees. Investigation includes checking the employee’s background, former employers, and references.

2.       Approval of department head or foreman on time records is required before preparing payroll.

3.       All prenumbered time records are accounted for before beginning data entry for preparation of payroll.

4.       The payroll accounting software calculates gross and net pay based on hours inputted and information in employee master files, and payroll accounting personnel double-check the mathematical accuracy on a test basis.

5.       The payroll accounting software application will not accept data input for an employee number not contained in the employee master file.

6.       Persons preparing the payroll do not perform other payroll duties (e.g., human resources or approval of time records) nor do they have access to payroll data master files or cash.

7.       Written termination notices, with properly documented reasons for termination, and approval by an appropriate official are required.

8.       All checks and notices of electronic payments not distributed to employees are returned to the treasurer for safekeeping and follow-up.

9.       Online ability to add employees or change pay rates to the payroll master file is restricted via passwords to authorized human resource personnel.

Required

a.       For each internal control, identify the type(s) of specific control activity (or activities) to which it applies (such as adequate documents and records or physical control over assets and records).

b.       For each control, list a specific misstatement that could result from the absence of the control.

c.        For each control, identify one audit test that the auditor could use to uncover misstatements resulting from the absence of the control.

 

12-25 (A-C)

Anthony Liu, CPA, prepared the flowchart on the next page that portrays the raw materials purchasing function of one of Anthony’s clients, Medium-Sized Manufacturing Company, from the preparation of initial documents through the vouching of invoices for payment in accounts payable. Assume that all documents are prenumbered.

Required

Identify the deficiencies in internal control that can be determined from the flowchart. Use the methodology discussed in this chapter. Include internal control deficiencies resulting from activities performed or not performed.

12-27 (A-C)

 Most grocery stores use bar code scanning technologies that interface with cash registers used to process customer purchases. Cashiers use the scanners to read bar code labels attached to each product, which the system then uses to obtain unit prices, calculate transaction totals, including sales taxes, and update perpetual inventory databases. Similarly, cashiers scan bar codes on coupons or member discount cards presented by the customer to process discounts. Along with the scanning technologies, groceries use point-of-sale technologies that allow customers to swipe debit and credit cards for payment, while still maintaining the ability for customers to pay with cash.

 

Required

a.Which financial statement accounts are impacted by the use of these technologies in a typical grocery store?

b.        Identify risks inherent to this business process in a grocery store that might affect the financial statement accounts identified in part a. For each risk, describe how these technologies help reduce the inherent risk.

c.How might an auditor use technology to test the operating effectiveness of a bar code scanner–based check-out system?

13-26 (A-F)

The following are audit procedures from different transaction cycles:

1.        Examine sales invoices for evidence of internal verification of prices, quantities, and extensions.

2.        Select items from the client’s perpetual inventory records and examine the items in the company’s warehouse.

3.        Use audit software to foot and cross-foot the cash disbursements journal and trace the balance to the general ledger.

4.        Examine loan agreements for key information such as interest rate, payment schedules, collateral, and restrictive covenants to determine whether management has properly included required disclosures in the footnotes to the financial statements.

5.        Select a sample of entries in the acquisitions journal and trace each one to a related vendor’s invoice to determine whether one exists.

6.        Examine documentation for acquisition transactions before and after the balance sheet date to determine whether they are recorded in the proper period.

7.        Inquire of the credit manager whether each account receivable on the aged trial balance is collectible.

8.        Compute inventory turnover for each major product and compare with previous years.

9.        Confirm a sample of notes payable balances, interest rates, and collateral with lenders.

10.     Use audit software to foot the accounts receivable trial balance and compare the balance with the general ledger.

Required

a.        For each substantive analytical procedure or test of details of balances procedure, identify the balance-  related audit objective or objectives being satisfied.

13-28 (A-E)

The following internal controls for the acquisition and payment cycle were selected from a standard internal control questionnaire.

1.        Approved purchase orders are required for all acquisitions of goods.

2.        Prenumbered receiving reports are prepared as support for acquisitions and numerically accounted for.

3.        Dates on receiving reports are compared with vendors’ invoices before entry into the acquisitions journal.

4.        Account classifications are reviewed by someone other than the preparer.

5.        Vendors’ invoices are recalculated before payment.

6.        All checks are signed by the owner or manager.

7.        The authorized signer compares data on supporting documents with checks and electronic funds transfer authorizations.

8.        Checks are mailed by the owner or a person under her supervision after signing.

9.        All supporting documents are cancelled after checks are signed or electronic funds transfers are approved.

10.     The accounts payable master file is updated, balanced, and reconciled to the general ledger monthly.

Required

a.For each control, identify which element of the five categories of control activities is applicable (separation of duties, proper authorization, adequate documents or records, physical control over assets and records, or independent checks on performance).

b.        For each control, state which transaction-related audit objective(s) is (are) applicable.

c.For each control, write an audit procedure that could be used to test the control for effectiveness.

d.        For each control, identify a likely misstatement, assuming that the control does not exist or is not functioning.

e.        For each likely misstatement, identify a substantive audit procedure to determine whether the misstatement exists.

13-32 (A-E)

Following are several decisions that the auditor must make in an audit of a nonpublic company. Letters indicate alternative conclusions that could be made.

Decisions

Alternative Conclusions

1. Determine whether it is cost effective to perform tests of controls.

A. It is cost effective

B. It is not cost effective

2. Perform substantive tests of details of balances.

C. Perform reduced tests

D. Perform expanded tests

3. Complete initial assessment of control risk.

E. Controls are effective

F. Controls are ineffective

4. Perform tests of controls.

G. Controls are effective

H. Controls are ineffective

Required

a.Identify the sequence in which the auditor should make decisions 1 to 4.

b.        For the audit of the sales and collection cycle and accounts receivable, an auditor reached the following conclusions: A, D, E, H. Put the letters in the appropriate sequence and evaluate whether the auditor’s logic was reasonable. Explain your answer.

c.For the audit of property, plant, and equipment and related acquisition records, an auditor reached the following conclusions: A, C, F, G. Put the letters in the appropriate sequence and evaluate whether the auditor used good professional judgment. Explain your answer.

d.        For the audit of payroll expenses and related liabilities, an auditor recorded the following conclusions: D, F. Put the letters in the appropriate sequence and evaluate whether the auditor used good professional judgment. Explain your answer.

e.For the audit of inventory and related inventory cost records, an auditor reached the following conclusions: B, C, E, G. Put the letters in the appropriate sequence and evaluate whether the auditor used good professional judgment. Explain your answer.

 

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Please read and answer the two questions.  Then number as 1 and 2

 

 1) Create a scenario where external auditors determined that a company’s internal controls were deficient, but such a deficiency might not mean that a material weakness existed. ·  Ascertain the impact on the audit plan if additional deficiencies are discovered on other related internal controls. · Support your position.  

 

2) Please read the rebuttal and answer in 5-to 6 sentences 

Let’s assume the inventory valuation and obsolescence is being reviewed during the audit process.  The company completes a physical inventory count each quarter and they analyze the inventory with the highest consumption rate.  The company investigates the automatic inventory posting system by weighted moving average cost for raw materials and standard cost for Finished goods and work in process goods. The calculation and posting mechanism is perfectly designed and valuation errors can only come from date entry issues.  The auditor determines no material weakness and not internal control process issues are present in the inventory valuation system. To keep control of obsolescence issues, the company should do monthly checks using the lower cost or market value test for the slow moving and highly price volatile items.  The auditor will probably plan to do sample checks of these items in the audit process. However, if control deficiencies are found in the inventory valuation for finished goods the auditor will want to investigate further.  At times, inventory may have been shipped and invoiced, but the the billing process has not been completed.  Other times, the shipping may not have been completed even though billing was complete and the items are mistakenly included in the inventory count.  The auditor will want to modify their audit plan so they can spend more time looking at the accounting process and control processes of the finished goods.  This will lead to the inventory records for each month of the past year needing a review to ensure material misstatements in regards to the inventory of the finished goods are discovered.  So, the deficiency in control processes for finished goods leads to the audit plan needing to be modified extensively to check for any internal control weaknesses.

 

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