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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