Auditing and Assurance Services, Student Value Edition (16th Edition)
16th Edition
ISBN: 9780134075754
Author: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan
Publisher: PEARSON
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Question
Chapter 13, Problem 9RQ
To determine
Indicate the presence of general controls over software programs and master file changes affects the extent of audit testing of each of these two internal controls.
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The auditor of Ferguson’s, Inc., identified two internal controlsin the sales and collection cycle for testing. In the first control, the computer verifiesthat a planned sale on account will not exceed the customer’s credit limit entered inthe accounts receivable master file. In the second control, the accounts receivable clerkmatches bills of lading, sales invoices, and customer orders before recording in thesales journal. Describe how the presence of general controls over software programsand master file changes affects the extent of audit testing of each of these two internalcontrols.
Which of the following test controls most likely would help assure an auditor that goods shipped are properly billed?
A. Scan the sales journal for sequential and unusual entries.
B. Examine shipping documents for matching sales invoice.
C. Compare the accounts receivalbe ledger to daily sales summaries.
D. inspect unused sales invoices for consecutive prenumbering.
The following internal controls were identified by the auditor while gaining an understanding of internal control for the sales cycle.
Access to the customer master file is restricted to authorized personnel. Customers are added to the master file only after appropriate approval, including adequate background and credit checks.
Sales are made only to approved customers. The computer system rejects orders if the customer number is invalid or the order exceeds the customer’s approved credit limit.
The computer matches the products and quantities on the customer order, shipping document, and sales invoice and generates an exception report of differences for follow-up in the accounting department.
The computer generates a daily list of unmatched shipping documents. The sales clerk follows up on each exception and electronically signs the report when they are resolved.
Invoice prices are obtained from the price master file. Any changes to the standard prices on an invoice must be…
Chapter 13 Solutions
Auditing and Assurance Services, Student Value Edition (16th Edition)
Ch. 13 - Prob. 1RQCh. 13 - Prob. 2RQCh. 13 - Prob. 3RQCh. 13 - Prob. 4RQCh. 13 - Prob. 5RQCh. 13 - Prob. 6RQCh. 13 - Explain how the calculation and comparison to...Ch. 13 - Prob. 8RQCh. 13 - Prob. 9RQCh. 13 - For each of the eight types of evidence discussed...
Ch. 13 - Prob. 11RQCh. 13 - Prob. 12RQCh. 13 - Prob. 13RQCh. 13 - Prob. 14RQCh. 13 - Prob. 15RQCh. 13 - Prob. 16RQCh. 13 - Prob. 17RQCh. 13 - Prob. 18RQCh. 13 - Prob. 19RQCh. 13 - Prob. 20.1MCQCh. 13 - Prob. 20.2MCQCh. 13 - A conceptually logical approach to the auditors...Ch. 13 - Prob. 21.1MCQCh. 13 - Prob. 21.2MCQCh. 13 - Prob. 21.3MCQCh. 13 - Prob. 22.1MCQCh. 13 - b. Substantive analytical procedures are most...Ch. 13 - Prob. 22.3MCQCh. 13 - Prob. 23DQPCh. 13 - Prob. 24DQPCh. 13 - Prob. 25DQPCh. 13 - Prob. 26DQPCh. 13 - Prob. 27DQPCh. 13 - Prob. 28DQPCh. 13 - Prob. 29DQPCh. 13 - Prob. 30DQPCh. 13 - Prob. 31DQPCh. 13 - Prob. 32DQPCh. 13 - Prob. 33DQPCh. 13 - Prob. 35C
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- You are working on the audit of Frozen Fresh Ltd and have just completed an evaluation of controls in the sales receivable, and receipt area. You note the following key controls as part of your evaluation a all sales handled were supported by shipping documents. b. All sales once shipped have been invoiced and recorded in the accounting records. C) invoices have been recorded correctly. Required: For each of the controls (a to c) 1. Identity the assertion addressed by the control 2. Provide one common control policies and procedures in the organisation to address the assertions 3. Provide one procedure that could be used to test the control for the key control identifiedarrow_forwardThe following are commonly performed tests of controls and substantive tests of transactions audit procedures in the sales and collection cycle: Review the prelisting of cash receipts to determine whether cash is prelisted daily. Reconcile the recorded cash receipts on the prelisting with the cash receipts journal and the bank statement for a one-month period. Account for a sequence of shipping documents and examine each one to make sure that a related sales invoice exists. Account for a sequence of sales invoices and examine each one to make sure that a related shipping document exists. Compare the quantity and description of items on shipping documents with the related sales invoices. Trace recorded sales in the sales journal to the related accounts receivable master file and compare the customer name, date, and amount for each one. Examine sales returns for approval by an authorized official. Required Identify whether each audit procedure is a test of control or a…arrow_forwardSharon, an audit manager assigned to the audit of Newsome Corporation is observing the client's revenue-receivables cycle. Sharon observes that the IT system responsible for processing and posting receivable transactions produces a daily exceptions report which is emailed to an accounts receivable clerk responsible for investigating the exceptions. Which of the following most accurately describes the type of control that is responsible for determining possible exceptions and forwarding them on to the accounts receivable clerk? • This type of control is typically referred to as a detective control. These types of controls usually assist the client in detecting items that need further investigation. These controls help to minimize misstatements in the financial statements. • This type of control is typically known as a manual IT control. This name is derived from the fact that although the control allows initial processing by the client's IT system, it is flagged for manual follow up. •…arrow_forward
- Which of the following audit procedures is a dual-purpose test, which tests the effectiveness of internal controls as well as any material misstatements in the financial statements?  A. The auditor accounts for the sequence of sales invoices.  B. The auditor selects a sample of transactions in the sales journal and traces them to the relevant shipping documents.  C. The auditor adds the transactions in the purchase journal and agrees to the total amount recorded in the general ledger.  D. A test over the bank reconciliation.  E. The auditor obtains a sample of timesheets for casual employees and checks for evidence of approval.arrow_forwardDetermine whether each of the following procedures is a test of control or a substantive test. a) The auditor inspects a sample of sales orders to determine if the sales manager has approved the orders. b) The auditor sends a confirmation to the bank to verify the cash balance on hand. c) The auditor attends the inventory count and observes client personnel as they conduct the count. d) The auditor recalculates the amount of interest payable. e) Stand by the payroll time clock to determine whether any employee "punches in" more than one time.arrow_forwardIndicate whether each of the following audit procedures is a testof controls, a substantive test, or a dual-purpose test. Next, indicate the financial statement assertion most closely related to each audit procedure. Required:a. Vouch recorded sales invoices to supporting shipping documents.b. Inspect recorded sales invoices for credit approval.c. Vouch recorded sales invoices prices to the approved price list.d. Send confirmations to all customers regarding accounts receivable.e. Recalculate the arithmetic accuracy of the recorded sales invoices.f. Compare the shipment date of recorded sales invoices with the invoice record date.g. Trace recorded sales invoices to posting in the general ledger control account and in the correct customer’s account.h. Select a sample of shipping documents from the shipping department file and trace shipments to recorded sales invoices.i. Scan recorded sales invoices and shipping documents for missing numbers in sequence.j. Vouch sales invoices and…arrow_forward
- Consider the following internal controls associated with an evaluated receipts process. For each control, identify the assertion for which the control is designed to prevent, or detect and correct misstatements. a. b. C. d. e. f. g. h. Software generates a daily report comparing the daily total in the cash disbursements journal with the total of payables submitted to the third-party payment processor for payment, and discrepancies are reported. Software generates a daily report of any discrepancies between the vendor accounting coding and general ledger accounts coding, which is compared with the purchase order and purchase requisition. Software generates a daily report of any discrepancies between the recorded payable and quantities on the receiving report. Once a receiving report is matched with a purchase, it cannot be matched with another purchase. Software generates a daily report of receiving reports that have not been matched one-for-one with the recording of a purchase and a…arrow_forwardThe following are commonly performed tests of controls and substantive tests of transactions audit procedures in the sales and collection cycle, acquisition and payment cycle, and inventory and warehousing cycle: Account for a sequence of shipping documents and examine each one to make sure that a duplicate sales invoice is attached. Compare the quantity and description of items on shipping documents with the related duplicate sales invoices. Trace a sample of voucher packages to the acquisitions journal throughout the year to determine that the transaction is included in the acquisitions journal. Determine if the transaction was recorded in the correct month, based on when the goods were received and the terms of the transaction.  Required: Identify for each test the related cycle. Identify whether each audit procedure is a test of control or a substantive test of transactions. State which of the six transaction-related audit objectives each of the audit procedures fulfills.arrow_forwardOliver DiPietro was testing the controls of Blue Coast Wholesale Fish Market. When testing controls, which one of the following evidence gathering procedures is used? a) vouching of transactions b) confirmations of accounts receivable c) tracing of transactions to source documents d) enquiry of client personnelarrow_forward
- Sandol Corporation has numerous customers. A customer file is kept on disk storage. Each customer file contains name, address, credit limit, and account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded. The best procedure for the auditor to follow would be to: a. Develop test data that would cause some account balances to exceed the credit limit and determine if the system properly detects such situations. O b. Request a printout of a sample of account balances so they can be individually checked against the credit limits. c. Request a printout of all account balances so they can be manually checked against the credit limits. O d. Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit.arrow_forwardTests of Controls and Errors/Frauds. The following four questions are taken from an internal control questionnaire. For each question, state (a) one test of controls procedure you could use to find out whether the control technique was really functioning and (b) what error or fraud could occur if the question were answered “no” or if you found the control was not effective.1. Are blank sales invoices available only to authorized personnel?2. Are sales invoices prenumbered and are all numbers accounted for?3. Are sales invoices checked for the accuracy of quantities billed? Prices used? Mathematical calculations?4. Are the duties of the accounts receivable bookkeeper separate from all cash functions?5. Are customer accounts regularly balanced with the control account?6. Do customers receive a monthly statement even when the ending balance on the account is zero?arrow_forwardThe following are audit procedures from different transaction cycles:1. Examine duplicate copy of shipping documents for evidence that quantities wereverified before shipment.2. Select a sample of payroll checks and agree hours to employee time records.3. Use audit software to foot and cross-foot the sales journal and trace the balance tothe general ledger.4. Examine voucher packages and related vendor invoices for evidence of approval ofaccount classification.5. Trace a sample of shipping documents to entry in the sales journal.6. Examine a sample of warehouse removal slips for signature of authorized official.7. Select a sample of entries in the cash receipts journal and trace to posting in individualcustomer accounts receivable records.8. Select a sample of sales invoices and agree prices to the approved price list.a. For each audit procedure, identify whether it is a test of control or a substantive testof transactions.b. For each audit procedure, identify the transaction-related…arrow_forward
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