EBK AUDITING AND ASSURANCE SERVICES
16th Edition
ISBN: 9780134067117
Author: Hogan
Publisher: VST
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Chapter 11, Problem 12RQ
To determine
Identify the major factors that allowed embezzlement to take place in Company BS.
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While auditing the financial statements of Petty Corporation, the certified public accounting firm of Trueblue and Smith discovered that its client’s legal expense account was abnormally high. Further investigation of the records indicated the following:
Since the beginning of the year, several disbursements totaling $15,000 had been made to the law firm of Swindle, Fox, and Kreip.
Swindle, Fox, and Kreip were not Petty Corporation’s attorneys.
A review of the canceled checks showed that they had been written and approved by Mary Boghas, the cash disbursements clerk.
Boghas’s other duties included performing the end of-month bank reconciliation.
Subsequent investigation revealed that Swindle, Fox, and Kreip are representing Mary Boghas in an unrelated embezzlement case in which she is the defendant. The checks had been written in payment of her personal legal fees.
Required:
a. What control procedures could Petty Corporation have employed to prevent this unauthorized use of cash?…
Frank James, a highly competent employee of BrinkwaterSales Corporation, had been responsible for accounting-related matters for two decades.His devotion to the firm and his duties had always been exceptional, and over the years,he had been given increased responsibility. Both the president of Brinkwater and thepartner of an independent CPA firm in charge of the audit were shocked and dismayedto discover that James had embezzled more than $500,000 over a 10-year period bynot recording billings in the sales journal and subsequently diverting the cash receipts.What major factors permitted the embezzlement to take place?
While auditing the financial statements of Petty Corporation, the certified publicaccounting firm of Trueblue and Smith discovered that its client’s legal expense accountwas abnormally high. Further investigation of the records indicated the following:Since the beginning of the year, several disbursements totaling $15,000 had been madeto the law firm of Swindle, Fox, and Kreip.Swindle, Fox, and Kreip were not Petty Corporation’s attorneys. A review of thecanceled checks showed that they had been written and approved by Mary Boghas, thecash disbursements clerk. Boghas’s other duties included performing the end-of-monthbank reconciliation.Subsequent investigation revealed that Swindle, Fox, and Kreip are representing MaryBoghas in an unrelated embezzlement case in which she is the defendant. The checkshad been written in payment of her personal legal fees.Requireda. What control procedures could Petty Corporation have employed to prevent thisunauthorized use of cash? Classify each…
Chapter 11 Solutions
EBK AUDITING AND ASSURANCE SERVICES
Ch. 11 - Prob. 1RQCh. 11 - Prob. 2RQCh. 11 - Prob. 3RQCh. 11 - Prob. 4RQCh. 11 - Prob. 5RQCh. 11 - Prob. 6RQCh. 11 - Prob. 7RQCh. 11 - Prob. 8RQCh. 11 - Prob. 9RQCh. 11 - Prob. 10RQ
Ch. 11 - Prob. 11RQCh. 11 - Prob. 12RQCh. 11 - Prob. 13RQCh. 11 - Prob. 14RQCh. 11 - Prob. 15RQCh. 11 - Prob. 16RQCh. 11 - Prob. 17RQCh. 11 - Prob. 18RQCh. 11 - Prob. 19RQCh. 11 - Prob. 20.1MCQCh. 11 - Actions, policies, and procedures that reflect the...Ch. 11 - Prob. 20.3MCQCh. 11 - Prob. 21.1MCQCh. 11 - Prob. 21.2MCQCh. 11 - Prob. 21.3MCQCh. 11 - Which of the following correctly describes an...Ch. 11 - Prob. 22.2MCQCh. 11 - Prob. 22.3MCQCh. 11 - Following are descriptions of ten internal...Ch. 11 - Prob. 24DQPCh. 11 - The following are misstatements that have occurred...Ch. 11 - Prob. 26DQPCh. 11 - Prob. 27DQPCh. 11 - Prob. 28DQPCh. 11 - Prob. 29DQPCh. 11 - Prob. 30DQPCh. 11 - Prob. 32C
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- Mark Williams, CPA, was engaged by Jackson Financial Development Company to audit the financial statements of Apex Construction Company, a small closely held corporation. Williams was told when he was engaged that Jackson Financial needed reliable financial statements that would be used to determine whether to purchase a substantial amount of Apex Construction’s convertible debentures at the price asked by the estate of one of Apex’s former directors. Williams performed his audit in a negligent manner. As a result of his negligence, he failed to discover substantial defalcations by Carl Brown, the Apex controller. Jackson Financial purchased the debentures, but it would not have done so if the defalcations had been discovered. After discovery of the fraud, Jackson Financial promptly sold them for the highest price offered in the market at a $70,000 loss. If Apex Construction also sues Williams for negligence, what are the probable legal defenses Williams’s attorney would raise?…arrow_forwardMark Williams, CPA, was engaged by Jackson Financial Development Company to audit the financial statements of Apex Construction Company, a small closely held corporation. Williams was told when he was engaged that Jackson Financial needed reliable financial statements that would be used to determine whether to purchase a substantial amount of Apex Construction’s convertible debentures at the price asked by the estate of one of Apex’s former directors. Williams performed his audit in a negligent manner. As a result of his negligence, he failed to discover substantial defalcations by Carl Brown, the Apex controller. Jackson Financial purchased the debentures, but it would not have done so if the defalcations had been discovered. After discovery of the fraud, Jackson Financial promptly sold them for the highest price offered in the market at a $70,000 loss. Will the negligence of Mark Williams, CPA, prevent him from recovering on a liability insurance policy covering the practice of…arrow_forwardSam Jones has been the controller of Downtown Tires for 25 years. Ownership of the firm recently changed hands and the new owners are conducting an audit of the financial records. The audit has been unable to reproduce financial reports that were prepared by Sam. While there is no evidence of wrongdoing, the auditors are concerned that the discrepancies might contribute to poor decisions. Which of the following characteristics of useful information is absent in the situation described above? timelyaccessibleverifiablecompleterelevantarrow_forward
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