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
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 |
| 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
Explanation of Solution
| Key internal controls. | Transaction related audit objectives |
| Segregation of the purchasing, receiving, and cash disbursements functions | Cash 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 list | The related audit objective is accuracy. |
| Use of pre numbered voucher packages, properly accounted for | Recoding of existing transactions- completeness. |
| Use of pre numbered checks, properly accounted for | The related objective is completeness. |
| Use of pre numbered receiving reports, properly accounted for | Recording of existing transaction- completeness. |
| Internal verification of document package, including comparison to preapproved vendor list, before check preparation | Accuracy, occurrence, posting and summarization, timing are related objectives. |
| Review of supporting documents and signing of checks by an independent, authorized person | Occurrence is the transaction related audit objective. |
| Cancellation of documents prior to signing of the check | Recording transactions for the goods and services which are actually received- occurrence. |
| Monthly reconciliation of the accounts payable master file with the general | Posting and summarization is the audit related accounting objective. |
| Independent reconciliation of the monthly bank statements | Accuracy and completeness are the related objective. |
| Independent review of financial statement disclosures related to acquisitions and cash disbursements | Accuracy, completeness are the related objective. |
(c).
To determine
Identify the
(c).
Expert Solution
Explanation of Solution
| Key internal controls. | Audit procedure |
| Segregation of the purchasing, receiving, and cash disbursements functions | Discuss the duties with the person in charge. |
| Purchasing can only make acquisitions from a preapproved vendor list | Check the list and get it approved before making purchase. |
| Use of pre numbered voucher packages, properly accounted for | Go for a sequenced account of voucher package |
| Use of pre numbered checks, properly accounted for | Keep an account for sequenced checks. |
| Use of pre numbered receiving reports, properly accounted for | Go for a sequenced receiving reports |
| Internal verification of document package, including comparison to preapproved vendor list, before check preparation | Examine the documents properly. |
| Review of supporting documents and signing of checks by an independent, authorized person | Examine the checks signed. |
| Cancellation of documents prior to signing of the check | Examine the documents before signing. |
| Monthly reconciliation of the accounts payable master file with the general ledger | Examine the client’s accounts |
| Independent reconciliation of the monthly bank statements | Examine the bank reconciliation after completion |
| Independent review of financial statement disclosures related to acquisitions and cash disbursements | Examine 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
Explanation of Solution
| Key internal controls. | Substantive test of transaction |
| Segregation of the purchasing, receiving, and cash disbursements functions | Examine entries in journal with that of invoices and reports. |
| Purchasing can only make acquisitions from a preapproved vendor list | Trace the transactions between the company and vendor. |
| Use of pre numbered voucher packages, properly accounted for | Reconcile vendor’s invoice to the journals. |
| Use of pre numbered checks, properly accounted for | Reconcile the various cash disbursements. |
| Use of pre numbered receiving reports, properly accounted for | Reconcile reporting reports to the journals. |
| Internal verification of document package, including comparison to preapproved vendor list, before check preparation | Examining the supporting documents. |
| Review of supporting documents and signing of checks by an independent, authorized person | Examine the supporting documents. |
| Cancellation of documents prior to signing of the check | Examine the journals |
| Monthly reconciliation of the accounts payable master file with the general ledger | Trace ledger with accounts payable |
| Independent reconciliation of the monthly bank statements | Examine the bank statements. |
| Independent review of financial statement disclosures related to acquisitions and cash disbursements | Reconcile 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
Explanation of Solution
Acquisition substantive tests of transactions
| Transaction related audit objective | Substantive audit procedures |
| Occurrence | Review journal, ledger and other related items. |
| Completeness | Trace journal with vendor’s invoices. |
| Accuracy | Reconfirm the information of vendor |
| Posting and summarization | Trace the |
| Classification | Compare classification with invoices |
| Timing | Compare reports with invoices |
Cash disbursements substantive tests of transactions
| Transaction related audit objective | Substantive audit procedures |
| Occurrence | Review journal, ledger with cash disbursement |
| Completeness | Trace journal with vendor’s cash disbursement. |
| Accuracy | Reconcile the cash disbursements and examine them properly. |
| Posting and summarization | Reconcile the individual entries related to cash disbursement. |
| Classification | Compare the classifications of the vendor’s |
| Timing | Reconcile checks which are cancelled with the cash disbursement journal |
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Introduction: In the rapidly evolving landscape of business and finance, the role of auditing
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Chapter 14 Solutions
Auditing And Assurance Services
Ch. 14 - Describe the following documents and records and...Ch. 14 - Prob. 2RQCh. 14 - Prob. 3RQCh. 14 - Prob. 4RQCh. 14 - Prob. 5RQCh. 14 - Prob. 6RQCh. 14 - Prob. 7RQCh. 14 - Prob. 8RQCh. 14 - Prob. 9RQCh. 14 - Prob. 10RQ
Ch. 14 - Prob. 11RQCh. 14 - Prob. 12RQCh. 14 - Prob. 13RQCh. 14 - Prob. 14RQCh. 14 - Prob. 15RQCh. 14 - Prob. 16RQCh. 14 - Prob. 17RQCh. 14 - Prob. 18RQCh. 14 - Prob. 19RQCh. 14 - Prob. 20.1MCQCh. 14 - Prob. 20.2MCQCh. 14 - Prob. 20.3MCQCh. 14 - Prob. 21.1MCQCh. 14 - An auditor is performing substantive tests of...Ch. 14 - Prob. 22.3MCQCh. 14 - Prob. 23.1MCQCh. 14 - Prob. 23.2MCQCh. 14 - Prob. 23.3MCQCh. 14 - Prob. 24DQPCh. 14 - Prob. 25DQPCh. 14 - Prob. 26DQPCh. 14 - Prob. 27DQPCh. 14 - Prob. 28DQPCh. 14 - Prob. 29DQPCh. 14 - Prob. 30DQPCh. 14 - Prob. 31DQPCh. 14 - Prob. 32DQPCh. 14 - Prob. 33DQPCh. 14 - Prob. 34DQPCh. 14 - Prob. 37ICA
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