Auditing And Assurance Services
Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Question
Chapter 14, Problem 37ICA

(a).

To determine

Determine the key control list of the eleven controls.

(a).

Expert Solution
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Explanation of Solution

Sl. No

Key internal controls
1.Segregation of the purchasing, receiving, and cash disbursements functions
2.Purchasing can only make acquisitions from a preapproved vendor list
3.Use of pre numbered voucher packages, properly accounted for
4.Use of pre numbered checks, properly accounted for
5.Use of pre numbered receiving reports, properly accounted for
6.Internal verification of document package, including comparison to preapproved vendor list, before check preparation
7.Review of supporting documents and signing of checks by an independent, authorized person
8.Cancellation of documents prior to signing of the check
9.Monthly reconciliation of the accounts payable master file with the general ledger
10.Independent reconciliation of the monthly bank statements
11.Independent review of financial statement disclosures related to acquisitions and cash disbursements

(b).

To determine

Determine the transaction related objective of each control that fully or partially satisfies the control.

(b).

Expert Solution
Check Mark

Explanation of Solution

Key internal controls.Transaction related audit objectives
Segregation of the purchasing, receiving, and cash disbursements functionsCash disbursements are for goods and services and the audit objective is occurrence. The audit objective of segregation of purchasing is also occurrence.
Purchasing can only make acquisitions from a preapproved vendor listThe related audit objective is accuracy.
Use of pre numbered voucher packages, properly accounted forRecoding of existing transactions- completeness.
Use of pre numbered checks, properly accounted forThe related objective is completeness.
Use of pre numbered receiving reports, properly accounted forRecording of existing transaction- completeness.
Internal verification of document package, including comparison to preapproved vendor list, before check preparationAccuracy, occurrence, posting and summarization, timing are related objectives.
Review of supporting documents and signing of checks by an independent, authorized personOccurrence is the transaction related audit objective.
Cancellation of documents prior to signing of the checkRecording transactions for the goods and services which are actually received- occurrence.
Monthly reconciliation of the accounts payable master file with the general ledgerPosting and summarization is the audit related accounting objective.
Independent reconciliation of the monthly bank statementsAccuracy and completeness are the related objective.
Independent review of financial statement disclosures related to acquisitions and cash disbursementsAccuracy, completeness are the related objective.

 (c).

To determine

Identify the audit procedure to test each control.

 (c).

Expert Solution
Check Mark

Explanation of Solution

Key internal controls.Audit procedure
Segregation of the purchasing, receiving, and cash disbursements functionsDiscuss the duties with the person in charge.
Purchasing can only make acquisitions from a preapproved vendor listCheck the list and get it approved before making purchase.
Use of pre numbered voucher packages, properly accounted forGo for a sequenced account of voucher package
Use of pre numbered checks, properly accounted forKeep an account for sequenced checks.
Use of pre numbered receiving reports, properly accounted forGo for a sequenced receiving reports
Internal verification of document package, including comparison to preapproved vendor list, before check preparationExamine the documents properly.
Review of supporting documents and signing of checks by an independent, authorized personExamine the checks signed.
Cancellation of documents prior to signing of the checkExamine the documents before signing.
Monthly reconciliation of the accounts payable master file with the general ledgerExamine the client’s accounts
Independent reconciliation of the monthly bank statementsExamine the bank reconciliation after completion
Independent review of financial statement disclosures related to acquisitions and cash disbursementsExamine the financial statement disclosure after completion.

(d).

To determine

Determine one substantive test of transaction for each test of control that indicates the efficiency of each test of control.

(d).

Expert Solution
Check Mark

Explanation of Solution

Key internal controls.Substantive test of transaction
Segregation of the purchasing, receiving, and cash disbursements functionsExamine entries in journal with that of invoices and reports.
Purchasing can only make acquisitions from a preapproved vendor listTrace the transactions between the company and vendor.
Use of pre numbered voucher packages, properly accounted forReconcile vendor’s invoice to the journals.
Use of pre numbered checks, properly accounted forReconcile the various cash disbursements.
Use of pre numbered receiving reports, properly accounted forReconcile reporting reports to the journals.
Internal verification of document package, including comparison to preapproved vendor list, before check preparationExamining the supporting documents.
Review of supporting documents and signing of checks by an independent, authorized personExamine the supporting documents.
Cancellation of documents prior to signing of the checkExamine the journals
Monthly reconciliation of the accounts payable master file with the general ledgerTrace ledger with accounts payable
Independent reconciliation of the monthly bank statementsExamine the bank statements.
Independent review of financial statement disclosures related to acquisitions and cash disbursementsReconcile the various cash disbursements

(e).

To determine

Determine one substantive tests of transaction for each transaction related audit objective for acquisitions and cash disbursements.

(e).

Expert Solution
Check Mark

Explanation of Solution

Acquisition substantive tests of transactions

Transaction related audit objectiveSubstantive audit procedures
OccurrenceReview journal, ledger and other related items.
CompletenessTrace journal with vendor’s invoices.
AccuracyReconfirm the information of vendor
Posting and summarizationTrace the journal entries to accounts payable
ClassificationCompare classification with invoices
TimingCompare reports with invoices

Cash disbursements substantive tests of transactions

Transaction related audit objectiveSubstantive audit procedures
OccurrenceReview journal, ledger with cash disbursement
CompletenessTrace journal with vendor’s cash disbursement.
AccuracyReconcile the cash disbursements and examine them properly.
Posting and summarizationReconcile the individual entries related to cash disbursement.
ClassificationCompare the classifications of the vendor’s
TimingReconcile checks which are cancelled with the cash disbursement journal

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