The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas

12-46 Overview and Objectives of Audit Procedure

The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas. Several deficiencies are noted; they resulted in significant errors not being initially identified.

Required
For each item listed as follows:
a. Identify the audit procedure that would have detected the error.
b. Identify the basic financial assertion tested by the audit procedure.

Documentation Deficiencies and Financial Statement Misstatements
1. The client was in violation of important loan covenant agreements.
2. The client was engaged in a sophisticated kiting scheme involving transfers through five geographically disbursed branch offices.
3. The December cash register was held open until January 8.All receipts through that date were recorded as December sales and cash receipts. The receipts, however, were deposited daily.
4. Cash disbursements for December were written, but the checks were not mailed until January 10 because of a severe cash flow problem.
5. The client’s bank reconciliation included an incorrect amount as balance per the bank.
6. Approximately 25 percent of the cash receipts for December 26 and December 28 were recorded twice.
7. The client’s bank reconciliation covered up a clever fraud by the controller by incorrectly footing the outstanding checks and including fictitious checks as outstanding.


Click here for the solution: The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas

The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas

12-46 (Overview and Objectives of Audit Procedures) The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas. Several deficiencies are noted; they resulted in significant errors not being initially identified.

Required
For each item listed as follows:
a. Identify the audit procedure that would have detected the error.
b. Identify the basic financial assertion tested by the audit procedure.

Documentation Deficiencies and Financial Statement Misstatements
1. The client was in violation of important loan covenant agreements.
2. The client was engaged in a sophisticated kiting scheme involving transfers through five geographically disbursed branch offices.
3. The December cash register was held open until January 8.All receipts through that date were recorded as December sales and cash receipts.The receipts, however, were deposited daily.
4. Cash disbursements for December were written, but the checks were not mailed until January 10 because of a severe cash flow problem.
5. The client’s bank reconciliation included an incorrect amount as balance per the bank.
6. Approximately 25 percent of the cash receipts for December 26 and December 28 were recorded twice.
7. The client’s bank reconciliation covered up a clever fraud by the controller by incorrectly footing the outstanding checks and including fictitious checks as outstanding.


Click here for the solution: The following represents a critical review of the documentation of a new auditor for the cash and marketable securities audit areas

The following are examples of documentation typically obtained by auditors

Auditing P 7-29 The following are examples of documentation typically obtained by auditors:

1. Vendors invoices
2. General ledgers
3. Bank statements
4. Cancelled payroll checks
5. Payroll time cards
6. Purchase requisitions
7. Receiving reports (documents prepared when merchandise is received)
8. Minutes of board of directors
9. Remittance advices
10. Signed W-4s (Employee's withholding exemption certificates)
11. Signed lease agreements
12. Duplicate copies of bills of lading
13. Subsidiary accounts receivable records
14. Cancelled notes payable
15. Duplicate sales invoices
16. Articles of incorporation
17. Title insurance policies for real estate
18. Notes receivable

Required:
a. Classify each of the preceding items according to type of documentation:(1) internal or (2) external.
b. Explain why external evidence is more reliable than internal evidence.


Click here for the solution: The following are examples of documentation typically obtained by auditors