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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Chapter 15, Problem 28DQP
Lenter Supply Company is a medium-sized distributor of wholesale hardware supplies in the central Ohio area. It has been a client of yours for several years and has instituted excellent internal controls for sales at your recommendation.
In providing control over shipments, the client has prenumbered “warehouse removal slips” that are used for every sale. It is company policy never to remove goods from the warehouse without an authorized warehouse removal slip. After shipment, two copies of the warehouse removal slip are sent to billing for the computerized preparation of a sales invoice. One copy is stapled to the duplicate copy of a prenumbered sales invoice, and the other copy is filed numerically. In some cases, more than one warehouse removal slip is used for billing one sales invoice. The smallest warehouse removal slip number for the year is 11741 and the largest is 34687. The smallest sales invoice number is 45302 and the largest is 65747.
In the audit of sales, one of the major concerns is the effectiveness of the controls in ensuring that all shipments are billed. You have decided to use audit sampling in testing internal controls
- a. State an effective audit procedure for testing whether shipments have been billed.
What is the sampling unit for the audit procedure?
- b. Assume that you expect no exceptions in the sample but are willing to accept a TER of 4%. At a 5% ARO, what is the appropriate
sample size for the audit test? You may complete this requirement using attributes sampling. - c. Design a random selection plan for selecting the sample from the population, using either systematic sampling or computer generation of random numbers. Use the sample size determined in part b. If you use systematic sampling, use a random starting point of 11878.
- d. Your supervisor suggests the possibility of performing other sales tests with the same sample as a means of efficiently using your audit time. List two other
audit procedures that can conveniently be performed using the same sample, and state the purpose of each of the procedures. - e. Is it desirable to test the occurrence of sales with the random sample you have de-signed in part c.? Why or why not?
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Lenter Supply Company is a medium-sized distributor of wholesale hardware supplies in the central Ohio area. It has been a client of yours for several years and has instituted excellent internal controls for sales at your recommendation.
In providing control over shipments, the client has prenumbered “warehouse removal slips” that are used for every sale. It is company policy never to remove goods from the warehouse without an authorized warehouse removal slip. After shipment, two copies of the warehouse removal slip are sent to billing for the computerized preparation of a sales invoice. One copy is stapled to the duplicate copy of a prenumbered sales invoice, and the other copy is filed numerically. In some cases, more than one warehouse removal slip is used for billing one sales invoice. The smallest warehouse removal slip number for the year is 11741 and the largest is 34687. The smallest sales invoice number is 45302 and the largest is 65747.
In the audit of sales, one of the…
Following are five separate cases involving internal control issues.
Required:
1. For each case, identify the principle(s) of internal control that is violated.
a.
Marker Theater has a computerized order-taking system for its tickets. The system is backed up once
a year.
b.
Sutton Company has two employees handling acquisitions of inventory. One employee places
purchase orders and pays vendors. The second employee receives the merchandise.
C.
To ensure the company retreat would not be cut, the manager of Lavina Company decided to save
money by canceling the external audit of internal controls.
d.
Tywin company keeps very poor records of its equipment. Instead, the company asserts its employees
are honest and would never steal from the company.
The owner of Super Pharmacy uses a check software/printer to prepare checks, making it difficult for
e. anyone to alter the amount of a check. The check software/printer, which is not password protected, is
on the owner's desk in an office that…
Following are five separate cases involving internal control issues. a. Tywin Company keeps very poor records of its equipment. Instead, the company asserts its employees are honest and would never steal from the company. b. Marker Theater has a computerized order-taking system for its tickets. The system is backed up once a year. c. Sutton Company has two employees handling acquisitions of inventory. One employee places purchase orders and pays vendors. The second employee receives the merchandise. d. The owner of Super Pharmacy uses a check software/printer to prepare checks, making it difficult for anyone to alter the amount of a check. The check software/printer, which is not password protected, is on the owner’s desk in an office that contains company checks and is normally unlocked. e. To ensure the company retreat would not be cut, the manager of Lavina Company decided to save money by canceling the external audit of internal controls. Required 1. For each case, identify the…
Chapter 15 Solutions
Auditing and Assurance Services, Student Value Edition (16th Edition)
Ch. 15 - Prob. 1RQCh. 15 - Prob. 2RQCh. 15 - Prob. 3RQCh. 15 - Prob. 4RQCh. 15 - Prob. 5RQCh. 15 - Prob. 6RQCh. 15 - Prob. 7RQCh. 15 - Prob. 8RQCh. 15 - Prob. 9RQCh. 15 - Prob. 10RQ
Ch. 15 - Prob. 11RQCh. 15 - Prob. 12RQCh. 15 - Prob. 13RQCh. 15 - Distinguish between the TER and the CUER. How is...Ch. 15 - Prob. 15RQCh. 15 - Prob. 16RQCh. 15 - Prob. 17RQCh. 15 - Prob. 18RQCh. 15 - Prob. 19RQCh. 15 - Prob. 20RQCh. 15 - Prob. 21RQCh. 15 - Prob. 22.1MCQCh. 15 - Prob. 22.2MCQCh. 15 - Prob. 22.3MCQCh. 15 - Prob. 23.1MCQCh. 15 - Prob. 23.2MCQCh. 15 - Prob. 23.3MCQCh. 15 - Prob. 24.1MCQCh. 15 - Prob. 24.2MCQCh. 15 - Prob. 24.3MCQCh. 15 - Prob. 25.1MCQCh. 15 - Prob. 25.2MCQCh. 15 - Prob. 25.3MCQCh. 15 - Prob. 27DQPCh. 15 - Lenter Supply Company is a medium-sized...Ch. 15 - Prob. 29DQPCh. 15 - Prob. 30DQPCh. 15 - Prob. 31DQPCh. 15 - Prob. 32DQPCh. 15 - Prob. 33DQPCh. 15 - Prob. 34DQPCh. 15 - Prob. 35DQPCh. 15 - Prob. 36CCh. 15 - Prob. 37ICA
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- Gaurav Mirchandaniis is the warehouse manager for a large office supply wholesaler. Mirchandaniis receives two copies of the customer sales order from the sales department. He elects the goods from the shelves and sends them and one copy of the sales order to the shipping department. He then files the second copy in a temporary file. Mirchandaniis retrieves the sales orders from the temporary file and updates the inventory subsidiary ledger from a terminal in his office. At that time, he identifies items that have fallen to low levels, selects a supplier, and prepares three copies of a purchase order. Once copy is sent to the supplier, one is sent to the accounts payable clerk, and one is files in the warehouse. When the goods arrive from the supplier, Mirchandaniis reviews the attached packing slip, counts and inspects the goods, places them on the shelves, and updates the inventory ledger to reflect the receipt. He then prepares a receiving report and sends it to the accounts payable…arrow_forwardGaurav Mirchandaniis is the warehouse manager for a large office supply wholesaler. Mirchandaniis receives two copies of the customer sales order from the sales department. He elects the goods from the shelves and sends them and one copy of the sales order to the shipping department. He then files the second copy in a temporary file. Mirchandaniis retrieves the sales orders from the temporary file and updates the inventory subsidiary ledger from a terminal in his office. At that time, he identifies items that have fallen to low levels, selects a supplier, and prepares three copies of a purchase order. Once copy is sent to the supplier, one is sent to the accounts payable clerk, and one is files in the warehouse. When the goods arrive from the supplier, Mirchandaniis reviews the attached packing slip, counts and inspects the goods, places them on the shelves, and updates the inventory ledger to reflect the receipt. He then prepares a receiving report and sends it to the accounts payable…arrow_forward
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