Auditing 2

 

PLease number them as shown when done

 

1) 10-33 (A-C)

The following audit procedures are included in the audit program because of heightened risks of material misstatements due to fraud.

1. Use audit software to search purchase transactions to identify any with nonstandard vendor numbers or with vendor names reflecting related parties.

2. Search sales databases for missing bill of lading numbers.

3. Use audit software to search for journal entries posted to the sales revenue account from a nonstandard source (other than the daily sales journal).

4. Use audit software to search cash disbursement master files for missing check numbers.

5. Search the accounts receivable master file for account balances with missing or unusual customer numbers (e.g., “99999”).

6. Use audit software to create a list of all credits to the repair and maintenance expense account for follow-up testing.

7. Engage an actuarial specialist to examine management’s assumptions about average length of employment and average life expectancy of retirees used in pension accounting decisions.

8. Send confirmations to customers for large sales transactions made in the fourth quarter of the year to obtain customer responses about terms related to the transfer of title and ability to return merchandise.

Required

For each audit procedure:

a. Describe the type of fraud risk that is likely associated with the need for this audit procedure.

b. Identify the related accounts likely affected by the potential fraud misstatement

c. Identify the related audit objective(s) that this procedure addresses.

 

2) 11-25 (A-C)

The following are misstatements that have occurred in Fresh Foods Grocery Store, a retail and wholesale grocery company:

1. On the last day of the year, a truckload of beef was set aside for shipment but was not shipped. Because it was still on hand, the inventory was counted. The shipping document was dated the last day of the year, so it was also included as a current-year sale.

2. The incorrect price was used on sales invoices for billing shipments to customers because the wrong price was entered into the computer master file of prices.

3. A vendor invoice was paid even though no merchandise was ever received. The accounts payable software application does not require the input of a valid receiving report number before payment can be made.

4. Employees in the receiving department took sides of beef for their personal use. When a shipment of meat was received, the receiving department filled out a receiving report and forwarded it to the accounting department for the amount of goods actually received. At that time, two sides of beef were put in an employee’s pickup truck rather than in the storage freezer.

5. An accounts payable clerk processed payments to himself by adding a fictitious vendor address to the approved vendor master file.

6. During the physical count of inventory of the retail grocery, one counter wrote down the wrong description of several products and miscounted the quantity.

7. A salesperson sold an entire carload of lamb at a price below cost because she did not know the cost of lamb had increased in the past week.

8. A vendor’s invoice was paid twice for the same shipment because the vendor sent a duplicate copy of the original 2 weeks after the payment was due.

Required

a. For each misstatement, identify one or more types of controls that were absent.

b. For each misstatement, identify the transaction-related audit objectives impacted.

c. For each misstatement, suggest a control that may have prevented or detected the misstatement.

 

3) 11-31 (A-E)

The SEC issues Accounting and Auditing Enforcement Releases (AAERs) summarizing SEC actions concerning civil lawsuits brought by the SEC in federal court and related settlements from administrative proceedings. Visit the SEC’s website (www.sec.gov) and locate the link to Accounting and Auditing Enforcement Releases (AAERs) under the “Enforcement” tab. Locate AAER-3932 involving Maxwell Technologies, Inc. issued on March 27, 2018.

Required

a. Briefly describe how the Maxwell Technologies, Inc. 2011 and 2012 financial statements were misstated.

b. Describe examples of deficiencies in Maxwell Technologies’ control environment.

c. One of the inherent limitations of internal control is management override of internal control procedures. Give an example of management override from the Maxwell Technologies AAER.

d. Maintaining adequate documents and records is an important element of an entity’s control activities. How did the company’s vice president of sales and marketing violate this important element of internal control?

e. The risk assessment component of internal control involves a process for identifying and analyzing risks that may prevent the organization from achieving its objectives. How did the senior financial personnel exhibit deficiencies in risk assessment procedures related to red flags regarding sales and collections from the German distributor?

 

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