The Levis overlooked both Administrative control and Accounting control objectives. By allowing Betty to execute transactions without Management’s approval they did not satisfy Administrative controls. It is also unclear whether there was any formal official procedure established which Betty was required to follow. Concerning Accounting control, the Levis first and foremost did not ensure that transactions were recorded as necessary. Betty was apparently given access to assets (cash and merchandise) without Management approval, allowing her to commit prolonged acts of fraud. 2.)
The CPA is currently on retainer with Howard Street Jewelers through the end of the year, so he has a duty to his client to provide necessary services, although they are out of scope and likely not detailed in the client’s engagement letter. The retainer charged to the client will need to be credited toward any out of scope billings that the CPA assesses his client.
The CPA should first refer to sales records to determine if the necessary entry was made to the inventory account at the time of sale. Furthermore, any sales should also be verified against the cash ledger, or the credit ledger in the case of layaway payments. He should also verify that the inventory was recorded at the time that it was purchased from the supplier. Any differences should be totaled and noted.
The CPA will also need to verify the validity of any payments that Howard Street Jewelers made to vendors. He will do this by referring to the vendor-level purchase ledger and comparing to the Cash journal and bank records to ensure that they were duly recorded. If any differences arrive, they should be totaled and combined with the sales differences form the above paragraph.
Next, the CPA will need to verify physical inventory and compare to what is on the books in the inventory. The cost of any deviations will need to be noted and totaled.
The total of all...