AUDITING+ASSURANCE 12MONTH ACCESS CARD
17th Edition
ISBN: 9780135635131
Author: ARENS
Publisher: WILEY
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Chapter 12, Problem 25DQP
To determine
List the deficiencies in internal control as per the given flowchart also includes whether these deficiencies are resulting from activities performed or not.
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Lee Wong, CPA, is auditing the financial statements of the Alexandria Corporation, which has a batch-processing IT-based system for shipping and invoicing that it purchased from a software vendor. The following comments have been extracted from Wong’s notes on IT operations and the processing and control of shipping notices and customer invoices.
Each type of computer run is assigned to a specific employee who is responsible for making program changes, running the program, and answering questions. This procedure has the advantage of eliminating the need for records of IT operations because each employee is responsible for his or her own computer runs. At least one IT department employee remains in the computer room during office hours, and only IT department employees have keys to the computer room.
The corporation considered the desirability of program controls but decided to retain the manual controls in place prior to the conversion to the software vendor’s system.
Company products…
The purpose of an audit trail is to be able to trace a transaction from its origin through source documents to the final output or backwards from the final output to the original source documents to prove the accuracy and validity of ledger postings. Describe in detail the audit trail for the following in a manufacturing business:
a. Shipping an order to a customer
b. Customer returns defective goods
c. Employee payroll for employee wages (using time cards or time sheets)
With the aid of visual diagrams, describe in detail the audit trail for the following in a manufacturing business:
Shipping an order to a customer
Customer returns defective goods
c. Employee payroll for employee wages (using time cards or time sheets)
SYSTEM DOCUMENTATION-EXPENDITURE CYCLE (MANUAL AND COMPUTER PROCEDURES)
The following describes the expenditure cycle for a hypothetical company.
The company has a centralized computer system with terminals located in various departments. The terminals are networked to a computer application, and digital accounting records are hosted on a server in the data processing department.
Each day, the computer in the data processing center scans the inventory records looking for items that must be replenished. For each item below its reorder point, the system creates a digital purchase order and prints two hard copies. A technician in the data center sends the purchase orders to the purchasing department clerk.
Upon receipt of the purchase orders, the purchasing clerk reviews and signs them. He sends Copy 1 to the supplier and files Copy 2 in the purchasing department. A few days later, the supplier ships the order and the goods arrive at the receiving department. The receiving clerk reviews…
Chapter 12 Solutions
AUDITING+ASSURANCE 12MONTH ACCESS CARD
Ch. 12 - Prob. 1RQCh. 12 - Prob. 2RQCh. 12 - Prob. 3RQCh. 12 - Describe how the nature of evidence used to...Ch. 12 - Prob. 5RQCh. 12 - Prob. 6RQCh. 12 - Prob. 7RQCh. 12 - Prob. 8RQCh. 12 - Prob. 9RQCh. 12 - Prob. 10RQ
Ch. 12 - Prob. 11RQCh. 12 - Prob. 12RQCh. 12 - Prob. 13RQCh. 12 - Prob. 14RQCh. 12 - Prob. 15RQCh. 12 - Prob. 16.1MCQCh. 12 - Prob. 16.2MCQCh. 12 - Prob. 16.3MCQCh. 12 - Prob. 17.1MCQCh. 12 - Prob. 17.2MCQCh. 12 - Prob. 17.3MCQCh. 12 - Prob. 18.1MCQCh. 12 - Prob. 18.2MCQCh. 12 - Prob. 18.3MCQCh. 12 - Prob. 19.1MCQCh. 12 - Prob. 19.2MCQCh. 12 - Prob. 19.3MCQCh. 12 - Prob. 20DQPCh. 12 - Prob. 21DQPCh. 12 - Prob. 22DQPCh. 12 - Prob. 23DQPCh. 12 - Prob. 24DQPCh. 12 - Prob. 25DQPCh. 12 - Prob. 26DQPCh. 12 - Prob. 27DQPCh. 12 - A CPAs client, Boos Baumkirchner, Inc., is a...Ch. 12 - Prob. 29DQPCh. 12 - Prob. 30DQPCh. 12 - Based on a cost-benefit analysis, management at...Ch. 12 - Prob. 32DQPCh. 12 - Prob. 33DQPCh. 12 - Prob. 34DQP
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- The following are partial descriptions of internal controls for companies engaged in the manufacturing business: 1. When Mr. Clark orders materials, an electronic copy of the purchase order is sent to the receiving department. During the delivery of materials, Mr. Smith, the receiving clerk, records the receipt of shipment on this purchase order and then sends the purchase order to the accounting department, where it is used to record materials purchased and accounts payable. The materials are transported to the storage area by forklifts. The additional purchased quantities are recorded on storage records. 2. Every day, hundreds of employees clock in using their employee identification cards at Generous Motors Corporation. The data on these time records is used in the preparation of the labor cost distribution records, the payroll journal, and the electronic payments and payroll checks. The treasurer, Angela Lee, compares the payroll journal with the payroll records, signs the checks,…arrow_forwardThe flowchart illustrates the business activities of four departments, including (1) Production Planning and Control, (2) Work Centres, (3) Inventory Control, and (4) Cost Accounting. Examine these activities and determine any control threats. In particular, discuss the control problems, the possible dangers, and any corrective procedures you would recommend.arrow_forwardUsing the flowchart structure presented in Figure 2- in the text, prepare a system flowchart of the pro- cess outlined in Problem 3. Assume the following: Hard-copy timesheets are submitted by employees to department management. Managers submit the time sheet data digitally from their department terminals to the automated payroll application located in the data center. The automated system posts the transactions to the digital payroll file. The system also prepares and distributes hard- copy checks and cost center reports to employees and management respectively. Managers review the reports and file them in their departmentsarrow_forward
- The purpose of an audit trail is to be able to trace a transaction from its origin through source documents to the final output or backwards from the final output to the original source documents to prove the accuracy and validity of ledger postings. With the aid of visual diagrams, describe in detail the audit trail for the following in a manufacturing business: Shipping an order to a customer Customer returns defective goods Employee payroll for employee wages (using time cards or time sheets)arrow_forwardThe purpose of an audit trail is to be able to trace a transaction through source documents to the final output or backwards from the final output to the original source documents to prove the accuracy and validity of ledger postings. Describe in detail the audit trail for the following in a manufacturing business: a. Shipping an order to a customer b. Customer returns defective goods c. Employee payroll for employee wages (using cards or time sheetsarrow_forwardWhich of the following is an example of an input control? a.making sure report that are distributed to the proper people b.monitoring the work of data entry clerks. c. Collecting accurate statistics of historical transactions while gathering data. d. Performing a check-digit test on a customer acount number e.Having anothr person review the design of a business formarrow_forward
- The purpose of an audit trail is to be able to trace a transaction from its origin through source documents to the final output or backwards from the final output to the original source documents to prove the accuracy and validity of ledger postings. Describe in detail the audit trail for the following in a manufacturing business: With the aid of visual diagrams, describe in detail the audit trail for the following in a manufacturing business: b. Customer returns defective goodsarrow_forwardYou are currently working in a mid-tier accounting firm. In an engagement meeting with a client, the management of your client is concerned that the audit tests that you perform will disrupt operations. Your client has recently implemented a data warehouse and the management suggests that you draw the data for analytical reviews and substantive testing from the data warehouse instead of the operational database. The management points out that operational data are copied weekly into the data warehouse and all data you need are contained there. Q. Outline your response to the management’s proposal and mention any concerns you might have.arrow_forwardOne of your Firm’s Managers, Colin Cronen is responsible for the auditing the financial statements of the Roman Corporation, which has a batch-processing IT-based system for shipping and invoicing that it purchased from a software vendor. The following comments have been extracted from Cronen’s notes on IT operations and the processing and control of shipping notices and customer invoices. Each type of computer run is assigned to a specific employee who is responsible for making program changes, running the program, and answering questions. This procedure has the advantage of eliminating the need for records of IT operations because each employee is responsible for his or her own computer runs. At least one IT department employee remains in the computer room during office hours, and only IT department employees have keys to the computer room. The corporation considered the desirability of program controls but decided to retain the manual controls in place prior to the conversion to the…arrow_forward
- The management of Swan Limited, has engaged you to review internal control over purchase,receipt, storage and issue of materials. You have prepared the following comments that describesSwan’s procedures.Raw materials, which consist mainly of high cost electronic components, are kept in a lockedstore room. The store room personnel include a supervisor and four clerks. All are well trained,competent and adequately bonded. Raw materials are removed from the storeroom only uponwritten or oral authorization of one of the production supervisors.There are no perpetual inventory records; hence, the storeroom clerks do not keep records ofgoods received or issued. To compensate for the lack of perpetual records, a physical inventorycount is taken monthly by the store room clerks who are well supervised. Appropriate proceduresare followed in making the inventory count.After the physical count, the store room supervisor matches the quantity counted againstpredetermined reorder levels. If the…arrow_forwardThe flowchart labeled Problem 14 depicts the responsibilities of an accounting clerk in a small company. Required Identify any control problems in the system. What sorts of fraud are possible in this system?arrow_forwardYou are the audit senior assigned to the audit of Fix-IT Ltd, a motor vehicle spares company.You obtain an understanding of the warehouse function within the revenue and receipts cycle at Fix-IT Ltd.The warehouse clerk accesses the internal sales order file with all the internal sales orders arranged by order numbers. They will then select the sales order for picking. Identify the type of access that the warehouse clerk should have to the internal sales order file. a. A. Read-only access b. B. Write-only access. C. D. Both write and read access d. C. No accessarrow_forward
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