Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Question
Chapter 10, Problem 20.1MCQ
To determine
Identify the internal control method suitable to identify the inventory theft.
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Which of the following procedures would best prevent or detect the theft of valuable items from an inventory that consists of hundreds of different items selling for $1 to $10 and a few items selling for hundreds of dollars?a. Maintain a perpetual inventory of only the more valuable items with frequent periodic verification of the accuracy of the perpetual inventory record.b. Have an independent accounting firm prepare an internal control report on the effectiveness of the controls over inventory.c. Have separate warehouse space for the more valuable items with frequent periodic physical counts and comparison to perpetual inventory records.d. Require a manager’s signature for the removal of any inventory item with a value of morethan $50.
When auditing with “fraud awareness,” auditors should especially notice and reviewemployee activities under which of these conditions?a. The company always estimates the inventory but never takes a complete physical count.b. The petty cash box is always locked in the desk of the custodian.c. Management has published a company code of ethics and sends frequent communicationnewsletters about it.d. The board of directors reviews and approves all investment transactions
An assistant on the Carter Company audit has been working in the revenue cycle and has compiled a list of possible errors and fraud that may result in the misstatement of Carter Company’s financial statements and a corresponding list of controls that, if properly designed and implemented, could assist in preventing or detecting the errors and fraud.
For each possible error and fraud numbered a through o, select one internal control from the following answer list that, if properly designed and implemented, most likely could assist management in preventing or detecting the errors and fraud. Each response in the list of controls may be selected once, more than once, or not at all.
A. Shipping clerks compare goods received from the warehouse with the details on the shipping documents.
B. Approved sales orders are required for goods to be released from the warehouse.
C. Monthly statements are mailed to all customers with outstanding balances.
D. Shipping clerks compare…
Chapter 10 Solutions
Auditing And Assurance Services
Ch. 10 - Prob. 1RQCh. 10 - Define misappropriation of assets and give two...Ch. 10 - Prob. 3RQCh. 10 - Prob. 4RQCh. 10 - Prob. 5RQCh. 10 - Prob. 6RQCh. 10 - Prob. 7RQCh. 10 - Prob. 8RQCh. 10 - Prob. 9RQCh. 10 - Prob. 10RQ
Ch. 10 - Prob. 11RQCh. 10 - Prob. 12RQCh. 10 - Prob. 13RQCh. 10 - Prob. 14RQCh. 10 - Prob. 15RQCh. 10 - Prob. 16RQCh. 10 - Prob. 17RQCh. 10 - Prob. 18.1MCQCh. 10 - Prob. 18.2MCQCh. 10 - Prob. 18.3MCQCh. 10 - Prob. 19.1MCQCh. 10 - Prob. 19.2MCQCh. 10 - Prob. 19.3MCQCh. 10 - Prob. 20.1MCQCh. 10 - Prob. 20.2MCQCh. 10 - Prob. 20.3MCQCh. 10 - Prob. 21.1MCQCh. 10 - Prob. 21.2MCQCh. 10 - Prob. 21.3MCQCh. 10 - Prob. 22DQPCh. 10 - Prob. 23DQPCh. 10 - Prob. 24DQPCh. 10 - Prob. 26DQPCh. 10 - Prob. 27DQPCh. 10 - Prob. 28DQPCh. 10 - Prob. 30DQPCh. 10 - Prob. 31DQPCh. 10 - Prob. 32DQPCh. 10 - Prob. 33DQP
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Similar questions
- Baker is an auditor for ABC Company. As part of a proactive fraud audit, Baker runs the following tests: (1) a review of the Sales Register for dormant customer accounts that posted a sale within the last two months; and (2) a comparison of the Sales Register and the Shipment Register for shipping documents that have no associated sales order. Taken together, what type of non-cash scheme is Baker most likely to find with these tests? Explain how each one might identify fraud.arrow_forwardWhen auditing with “fraud awareness,” auditors should especially notice and follow up employee activities under which of these conditions?a. The company always estimates the inventory but never takes a complete physical count.b. The petty cash box is always locked in the desk of the custodian.c. Management has published a company code of ethics and sends frequent communication newsletters about it.d. The board of directors reviews and approves all investment transactions.arrow_forwardAs the auditor of Sample Limited you note the following matters relating to the internal control of its sales system. i) The sales department accepts order without first checking the inventory level with the warchouse, ii) Goods are dispatched to customers without recording customer's signatures as proof of receipt of goods. iii) Orders of goods placed by customers are properly recorded but they are not forwarded timely to the dispatch department for fulfilling the order. For each of the above deficiencies, identify the possible impact on the company's operation and recommend a control to address it. Explain why an auditor cannot perform only test of control in an audit.arrow_forward
- Post, CPA, accepted an engagement to audit the financial statements of General Co., a new client. General is a publicly held retailing entity that recently replaced its operating management. In the course of applying audit procedures, Post discovered indicators of fraud. After further investigation, they determined that a warehouse employee was stealing inventory.1) Discuss fraud materiality thresholds and explain whether the specific fraud case outlined above can be considered inconsequential. 2) Discuss Post's responsibilities regarding required communications if the fraud was determined to be:a) Clearly inconsequential.b) Not clearly inconsequential. 3) Discuss auditor obligations regarding client confidentiality and allowed disclosures relating to fraud.arrow_forwardA competent auditor has done a conscientious job of conducting an audit, but because of a*clever fraud by management, a material fraud is included in the financial statements. The fraud, which is an. overstatement of inventory, took place over several years, and it covered up the fact that the company’s financial position was rapidly declining. The fraud was accidentally discovered in the latest audit by an unusually capable audit senior, and the SEC was immediately informed. Subsequent investigation indicated that the company was actually near bankruptcy, and the value of the stock dropped from P260 per share to PIO in less than 1 month. Among the losing stockholders were pension funds, university endowment funds, retired couples, and widows. The individuals responsible for perpetrating the fraud were also bankrupt. After making an extensive investigation of the audit performance in previous years, the SEC was satisfied that the auditor had done a high-quality audit and had followed…arrow_forward
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