Chapter 3, Problem 1QAP

Mr A Bold has recently acquired the controlling interest in Quicksand Co, which is an importer of sportswear. In his review of the organisational structure of the company Mr Bold became aware of weaknesses in the procedures for the signing of cheques and the operation of the petty cash system. Mr Bold engages you as the company's auditor and requests that you review the controls over cheque payments and petty cash. He does not wish to be a cheque signatory himself because he feels that such a procedure is an inefficient use of his time. In addition to Mr Bold, who is the managing director, the company employs 20 personnel including four other directors, and approximately 300 cheques are drawn each month. The petty cash account normally has a working balance of about $300, and $600 is expended from the fund each month. Mr Bold has again indicated that he is unwilling to participate in any internal control procedures which would ensure the efficient operation of the petty cash fund.…

Mr A Bold has recently acquired the controlling interest in Quicksand Co, which is an importer of sportswear. In his review of the organisational structure of the company Mr Bold became aware of weaknesses in the procedures for the signing of cheques and the operation of the petty cash system. Mr Bold engages you as the company's auditor and requests that you review the controls over cheque payments and petty cash. He does not wish to be a cheque signatory himself because he feels that such a procedure is an inefficient use of his time. In addition to Mr Bold, who is the managing director, the company employs 20 personnel including four other directors, and approximately 300 cheques are drawn each month. The petty cash account normally has a working balance of about $300, and $600 is expended from the fund each month. Mr Bold has again indicated that he is unwilling to participate in any internal control procedures which would ensure the efficient operation of the petty cash fund.  b.…

Mr A Bold has recently acquired the controlling interest in Quicksand Co, which is an importer of sportswear. In his review of the organisational structure of the company Mr Bold became aware of weaknesses in the procedures for the signing of cheques and the operation of the petty cash system. Mr Bold engages you as the company's auditor and requests that you review the controls over cheque payments and petty cash. He does not wish to be a cheque signatory himself because he feels that such a procedure is an inefficient use of his time. In addition to Mr Bold, who is the managing director, the company employs 20 personnel including four other directors, and approximately 300 cheques are drawn each month. The petty cash account normally has a working balance of about $300, and $600 is expended from the fund each month. Mr Bold has again indicated that he is unwilling to participate in any internal control procedures which would ensure the efficient operation of the petty cash fund. (a)…

Jake, your staff auditor, will be performing the test of interbank transfers.  He plans to compare dates receipts were posted to the Bank of America account (on the bank statement) to dates the corresponding disbursements were posted to the Wells Fargo account (on the bank statement).  Jake's planned approach of focusing on transaction dates on the bank statements is the correct approach for testing interbank transfers.   Question options:   True   False

Many countries have now made money laundering a criminal offence. In some countries, such as the UK, Australia, Singapore and the USA, the criminal offences include those directed at accountants. In the UK, the basic requirements are for accountants to keep records of clients’ identity and to report suspicions of money laundering to the National Crime Agency (NCA). These obligations apply both to firms and to individuals. A firm must establish anti-money laundering programmes which help to reduce to the possible barest minimum, the impact of money laundering on the firm. There are specific regulatory obligations imposed on accountants and auditors in relation to detecting and reporting money laundering activities. As the audit manager of Queenstar Consults, you have been asked to provide a training session to the new audit juniors on auditors’ responsibilities in relation to money laundering. Required: (a) Prepare briefing notes to be used at your training session in which you: i.…

The Perfect Crime? Consider the following story of an actual embezzlement.This was the ingenious embezzler’s scheme: (a) He hired a print shop to print a private stock of Ajax Company checks in the company’s numerical sequence. (b) In his job as an accounts payable clerk at Ajax, he intercepted legitimate checks written by the accounts payable department and signed by the Ajax treasurer and destroyed them. (c) He substituted thesame numbered check from the private stock, payable to himself in the same amount as the legitimate check, and he “signed” it with a rubber stamp that looked enough like the Ajax Company treasurer’s signature to fool the paying bank. (d) He deposited the money in his own bank account. The bank statement reconciler (a different person) was able to agree the check numbers and amounts listed in the cleared items in the bank statement to the recorded cash disbursement (check number and amount) and thus did not notice the embezzler’s scheme.The embezzler was able to…

When an entity uses a trust company as custodian of its marketable securities, the possibility of concealing fraud most likely would be reduced if thea. Trust company has no direct contact with the entity employees responsible for maintaining investment accounting records.b. Securities are registered in the name of the trust company rather than the entity itself.c. Interest and dividend checks are mailed directly to an entity employee who is authorized to sell securities.d. The trust company places the securities in a bank safe deposit vault under the custodian’s exclusive control.

Subsequently Discovered Facts. On June 1, Sidney Faultless of A. J. Faultless & Co., CPAs, noticed some disturbing information about the firm’s client, Hopkirk Company. A story in the local paper mentioned the indictment of Tony Baker, whom Faultless knew as the assistant controller at Hopkirk. The charge was mail fraud. Faultless made discreet inquiries with the controller at Hopkirk’s headquarters and learned that Baker had been speculating in foreign currency futures. In fact, part of Baker’s work at Hopkirk involved managing the company’s foreign currency. Unfortunately, Baker had violated company policy, lost a small amount of money, and then decided to speculate some more, lost some more, and eventually lost $7 million of company funds. The mail fraud was involved in Baker’s attempt to cover his activity until he recovered the original losses. Most of the events were in process on March 1, when Faultless had signed and dated the unmodified opinion on Hopkirk’s financial…

Henry Mills is responsible for preparing checks, recording cash disbursements, and preparing bank reconciliations for Signet Corporation. While reconciling the October bank statement, Mills noticed that several checks totaling $937 had been outstanding for more than one year. Concluding that these checks would never be presented for payments, Mills prepared a check for $937 payable to himself, forged the treasurer’s signature, and cashed the check. Mills made no entry in the accounts for this disbursement and attempted to conceal the theft by destroying the forged check and omitting the long-outstanding checks from subsequent bank reconciliations. Required: Identify the weaknesses in Signet Corporation’s internal control. Explain several audit procedures that might disclose the fraudulent disbursement.