26 Jun Textbook Problems
Problem 23-20 (Objectives 23-3, 23-4) The following are misstatements that might be found in the client’s year-end cash balance (assume that the balance sheet date is June 30):
· 1. The outstanding checks on the June 30 bank reconciliation were underfooted by $2,000.
· 2. A loan from the bank on June 26 was credited directly to the client’s bank account. The loan was not entered as of June 30.
· 3. A check was omitted from the outstanding check list on the June 30 bank reconciliation. It cleared the bank July 7.
· 4. A check was omitted from the outstanding check list on the bank reconciliation. It cleared the bank September 6.
· 5. Cash receipts collected on accounts receivable from July 1 to July 5 were included as June 29 and 30 cash receipts.
· 6. A bank transfer recorded in the accounting records on July 1 was included as a deposit in transit on June 30.
· 7. A check that was dated June 26 and disbursed in June was not recorded in the cash disbursements journal, but it was included as an outstanding check on June 30.
Required
· a. Assuming that each of these misstatements was intentional (fraud), state the most likely motivation of the person responsible.
· b. What control can be instituted for each fraud to reduce the likelihood of occurrence?
· c. List an audit procedure that can be used to discover each fraud.
14-23 (Objectives 14-1, 14-3) The following questions deal with audit evidence for the sales and collection cycle. Choose the best response.
a. An auditor is performing substantive tests of transactions for sales. One step is to trace a sample of debit entries from the accounts receivable master file back to the supporting duplicate sales invoices. What will the auditor intend to establish by this step?
(1) Sales invoices represent existing sales.
(2) All sales have been recorded.
(3) All sales invoices have been correctly posted to customer accounts.
(4) Debit entries in the accounts receivable master file are correctly supported by sales invoices.
b. Which audit procedure is most effective in testing credit sales for overstatement?
(1) Trace a sample of postings from the sales journal to the sales account in the general ledger.
(2) Vouch a sample of recorded sales from the sales journal to shipping documents.
(3) Prepare an aging of accounts receivable.
(4) Trace a sample of initial sales orders to sales recorded in the sales journal.
c. To determine whether internal control relative to the revenue cycle of a wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices, an auditor would most likely select a sample of transactions from the population represented by the
(1) sales order file.
(2) customer order file.
(3) shipping document file.
(4) sales invoice file.
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