To answer the question below here is an example. Please number them as shown
1 A write out your answer
B write out your answer
C write out your answer
2. A write out your answer
B write out your answer
C write out your answer
Each of the following internal controls has been taken from a standard internal control questionnaire used by a CPA firm for assessing control risk in the payroll and personnel cycle.
1. Human resource policies require an investigation of an employment application from new employees. Investigation includes checking the employeeâ€s background, former employers, and references.
2. Approval of department head or foreman on time records is required before preparing payroll.
3. All prenumbered time records are accounted for before beginning data entry for preparation of payroll.
4. The payroll accounting software calculates gross and net pay based on hours inputted and information in employee master files, and payroll accounting personnel double-check the mathematical accuracy on a test basis.
5. The payroll accounting software application will not accept data input for an employee number not contained in the employee master file.
6. Persons preparing the payroll do not perform other payroll duties (e.g., human resources or approval of time records) nor do they have access to payroll data master files or cash.
7. Written termination notices, with properly documented reasons for termination, and approval by an appropriate official are required.
8. All checks and notices of electronic payments not distributed to employees are returned to the treasurer for safekeeping and follow-up.
9. Online ability to add employees or change pay rates to the payroll master file is restricted via passwords to authorized human resource personnel.
a. For each internal control, identify the type(s) of specific control activity (or activities) to which it applies (such as adequate documents and records or physical control over assets and records).
b. For each control, list a specific misstatement that could result from the absence of the control.
c. For each control, identify one audit test that the auditor could use to uncover misstatements resulting from the absence of the control.
Most grocery stores use bar code scanning technologies that interface with cash registers used to process customer purchases. Cashiers use the scanners to read bar code labels attached to each product, which the system then uses to obtain unit prices, calculate transaction totals, including sales taxes, and update perpetual inventory databases. Similarly, cashiers scan bar codes on coupons or member discount cards presented by the customer to process discounts. Along with the scanning technologies, groceries use point-of-sale technologies that allow customers to swipe debit and credit cards for payment, while still maintaining the ability for customers to pay with cash.
a.Which financial statement accounts are impacted by the use of these technologies in a typical grocery store?
b. Identify risks inherent to this business process in a grocery store that might affect the financial statement accounts identified in part a. For each risk, describe how these technologies help reduce the inherent risk.
c.How might an auditor use technology to test the operating effectiveness of a bar code scannerâ€“based check-out system?
The following are audit procedures from different transaction cycles:
1. Examine sales invoices for evidence of internal verification of prices, quantities, and extensions.
2. Select items from the clientâ€s perpetual inventory records and examine the items in the companyâ€s warehouse.
3. Use audit software to foot and cross-foot the cash disbursements journal and trace the balance to the general ledger.
4. Examine loan agreements for key information such as interest rate, payment schedules, collateral, and restrictive covenants to determine whether management has properly included required disclosures in the footnotes to the financial statements.
5. Select a sample of entries in the acquisitions journal and trace each one to a related vendorâ€s invoice to determine whether one exists.
6. Examine documentation for acquisition transactions before and after the balance sheet date to determine whether they are recorded in the proper period.
7. Inquire of the credit manager whether each account receivable on the aged trial balance is collectible.
8. Compute inventory turnover for each major product and compare with previous years.
9. Confirm a sample of notes payable balances, interest rates, and collateral with lenders.
10. Use audit software to foot the accounts receivable trial balance and compare the balance with the general ledger.
a. For each substantive analytical procedure or test of details of balances procedure, identify the balance- related audit objective or objectives being satisfied.
The following internal controls for the acquisition and payment cycle were selected from a standard internal control questionnaire.
1. Approved purchase orders are required for all acquisitions of goods.
2. Prenumbered receiving reports are prepared as support for acquisitions and numerically accounted for.
3. Dates on receiving reports are compared with vendorsâ€ invoices before entry into the acquisitions journal.
4. Account classifications are reviewed by someone other than the preparer.
5. Vendorsâ€ invoices are recalculated before payment.
6. All checks are signed by the owner or manager.
7. The authorized signer compares data on supporting documents with checks and electronic funds transfer authorizations.
8. Checks are mailed by the owner or a person under her supervision after signing.
9. All supporting documents are cancelled after checks are signed or electronic funds transfers are approved.
10. The accounts payable master file is updated, balanced, and reconciled to the general ledger monthly.
a.For each control, identify which element of the five categories of control activities is applicable (separation of duties, proper authorization, adequate documents or records, physical control over assets and records, or independent checks on performance).
b. For each control, state which transaction-related audit objective(s) is (are) applicable.
c.For each control, write an audit procedure that could be used to test the control for effectiveness.
d. For each control, identify a likely misstatement, assuming that the control does not exist or is not functioning.
e. For each likely misstatement, identify a substantive audit procedure to determine whether the misstatement exists.
Following are several decisions that the auditor must make in an audit of a nonpublic company. Letters indicate alternative conclusions that could be made.
1. Determine whether it is cost effective to perform tests of controls.
A. It is cost effective
B. It is not cost effective
2. Perform substantive tests of details of balances.
C. Perform reduced tests
D. Perform expanded tests
3. Complete initial assessment of control risk.
E. Controls are effective
F. Controls are ineffective
4. Perform tests of controls.
G. Controls are effective
H. Controls are ineffective
a.Identify the sequence in which the auditor should make decisions 1 to 4.
b. For the audit of the sales and collection cycle and accounts receivable, an auditor reached the following conclusions: A, D, E, H. Put the letters in the appropriate sequence and evaluate whether the auditorâ€s logic was reasonable. Explain your answer.
c.For the audit of property, plant, and equipment and related acquisition records, an auditor reached the following conclusions: A, C, F, G. Put the letters in the appropriate sequence and evaluate whether the auditor used good professional judgment. Explain your answer.
d. For the audit of payroll expenses and related liabilities, an auditor recorded the following conclusions: D, F. Put the letters in the appropriate sequence and evaluate whether the auditor used good professional judgment. Explain your answer.
e.For the audit of inventory and related inventory cost records, an auditor reached the following conclusions: B, C, E, G. Put the letters in the appropriate sequence and evaluate whether the auditor used good professional judgment. Explain your answer.
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