When a client does not adequately segregate duties, the possibility of cash being stolen before it is recorded is increased. If the auditor suspects that this type of defalcation is possible, what type of audit procedures can he or she use to test this possibility? The auditor can review who handles the receiving and preparing customer orders, approving of credit, preparing customer invoice, preparing accounts receivable aged trial balance and if the same person is doing all these duties then the auditor will be able to determine if cash is being stolen.
What are the two major controls for sales returns and allowances transactions? First each credit memorandum should be approved by someone other than the individual who initiated it. Second, a credit for returned goods should be supported by a receiving document indicating that the goods have been returned.
List four analytical procedures that can be used to test revenue-related accounts. What potential misstatements are indicated by each of these analytical procedures? 1) Comparison of sales returns as a percentage of revenue to previous years’ or industry data. The potential misstatement is that it will be under-or overstatement of sales returns. 2) Estimation of sales commission expense by multiplying net revenue by average commission rate and comparison of recorded sales commission expense. The potential misstatement is that the under-or overstatement of sales commission expense and related accrual. 3) Comparison of gross profit percentage by product line with previous years and industry data. The possible misstatement detected would be unrecorded (understated) revenue. 4) Analysis of the ratio of sales in the last month or week to total sales for the quarter or year. The possible misstatement detected would be product-pricing problems.
Prepare the “Shipments” segment of Taylor’s internal control questionnaire.
Does the department have a budget review and reconciliation process?
Are there reports submitted to management that monitor the number of coats sold, returned and ordered
Has the company had activity experienced of any mysterious disappearances of assets, theft or employee dishonesty during the last three years?
Are the departmental signature authorization records and online approval hierarchies up to date?
Have any employees re-delegated signature authorizations that were delegated to them?
What controls are in place to ensure accuracy of the order?
Are insurance coverage, overlaps, duplications etc. reviewed?
List the key segregation of duties in the purchasing process. What errors or fraud can occur if such duties are not segregated? Segregation of Duties
Possible Errors or Fraud Resulting from Conflicts of Duties The purchasing function should be segregated from the requisitioning and receiving functions.
If one individual is responsible for the requisition, purchasing, and receiving functions, fictitious or unauthorized purchases can be made. This can result in the theft of goods and possibly payment for unauthorized purchases. The invoice-processing function should be segregated from the accounts payable function.
If one is responsible for the invoice processing and the accounts payable functions, purchase transactions can be processed at the wrong price or terms, or a cash disbursement can be processed for goods or services not received. This can result in overpayment for goods and services or the theft of cash. The disbursement function should be segregated from the accounts payable function
If one individual is responsible for the disbursement function and also has access to the accounts payable records, unauthorized checks supported by fictitious documents can be issued, and unauthorized transactions can be recorded. This can result in theft of the entity’s cash. The accounts...
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