1) You ,the auditor, attended the inventory count (stocktake ) of your client Smith Equipment and observed the following during the count :
1. Warehouse staff counted specific areas of the stock as determined by the warehouse supervisor ; staff members ,including the warehouse supervisor , were allocated their own area to count on their own.
2. Several blank sheets of paper were issued to each member of staff doing the counting.
3. Staff were instructed to write down the stock description and number counted .
4. Staff were told to write the stock quantities in pencil on the sheets to ensure errors can be corrected .
5. Any staff that completed a section early were allocated to another area to help out one of the other staff .
6.The supervisor collected all sheets at the end of the count to finalise the stock count .
Required :
Identify the weaknesses in the stocktake procedures above and identify how they could be improved.
2) You , the auditor , have spent 5 years as an auditor . In this time you have come across numerous errors in performing bank reconciliations . The following are some of these errors:
1. An unreconciled item of $340 was on the final bank reconciliation of the client and was deemed by the client to be immaterial.
2. Two deposits totalling $4070 relating to accounts receivable were collected on 3July ( 30 June year end) but recorded as cash receipts on 30 June.
3. An amount from an associate company of $40,000 was banked 2 days before the end of the year in the client’s bank account and then paid back 1 week after the end of the year .
4. A cheque for $6,000 was omitted from the outstanding cheque list on the bank reconciliation at 30 June . It cleared the bank on the 14 August .
5.A bank transfer of $20,000 was included as a deposit in transit at 30 June in the accounting records.
Required :
(a) What control should be implemented to reduce the likelihood of each of the above?
(b) What is an audit procedure to detect or prevent each of the above?
3) The following is an extract from a working paper containing the results of the tests of controls in the accounts payable area:
Test Result Conclusion
Selected a number of supplier Six out of 50 invoices tested had Accepted as the invoices and checked that the not been authorised .Incorrect discounts errors in the
pricing and discounts have been were recorded for these invoices.A follow discounts claimed reviewed and authorised by the up of the four incorrect invoices did not were immaterial .
purchasing manager not highlight a pattern or specific reason for the errors.
Required:
(a) Identify the key assertion addressed by the test procedure .
(b) Provide an explanation as to why the conclusion reached is appropriate or inappropriate.
(c) Outline the key control procedure that you believe needs to be performed.
1) While audit of the balance sheet of the company there are few items those needs to be looked and audited with better applied analytical and substantive procedures of the same. The responsibility of Inventory control lies with the manager of the warehouse of the location. The Manager must ensure that the staff members who are involved in stocktaking must aware of the established procedure which needs to be followed in stock taking. He is responsible for proper co-ordination between the staff member and also have the responsibility to complete the stock audit. However, it is duty of the auditor to visit the stocktaking site to determine the effectiveness of the stock taking.
The slow moving inventory in a company. There are many cash dealings which get interrupted due to delay in stock being converted back into cash.
The main intension and objective of Stocktaking is as follows:
In the given case auditor has attended the stock taking of Smith Equipment and certain discrepancies has been found by them which is described as follows:
SI.No. |
Weakness |
Improvement Recommendation |
1. |
Warehouse Staff Counted specific area of the warehouse for physical verification |
However, it is duty of the Warehouse manager to check all the area has been covered and no area has been left and physical verification of every item has been done properly |
2. |
Issuance of blank sheet to each member of staff doing the count |
Instead of Issuing blank sheet to the stocktaking staff stock take scanner should be allocated to stock taker which will be used by them in stock taking along with the stock taking instruction. This brings better internal control and chances of error and loosing blank sheet is also low. |
3. |
Staff Were Instructed to Write down the stock description and number counted |
Instead of giving this type of Instructor stock scanner as stated above should be given to each staff so that there is less chances of error and it will bring more accuracy. |
However, there is certain more recommendation which helps smith Equipment in better stock undertaking. This is as follows:
2) Control over the bank reconciliation ensures that all the cash transaction has been properly recorded in the books of accounts for a given period of time. Bank reconciliation also ensures the accuracy of the Financial Statement. With the help of bank reconciliation any omission of transaction in the books of accounts can b easily detected irrespective of the reason that where omission is due to fraud or error.
However to ensure less changes of error in the Bank reconciliation one should implement the following procedure to reduce the chance of Error. This are described as follows:
There must be segregation of duties between the bank reconciliation between the two departments i.e. between accounts department and payment department. If same person are engaged in same activity then there is more chances of fraud. Bank reconciliation must be done by the person other than clerk who are in charge of transaction such as receipt, billings and account payable. The reconciliation clerk who is engaged in bank reconciliation must ensure that he has collected all the cancelled cheque and it has been properly dealt in accounts.
1) Auditor should compare the bank cancellation date with bank reconciliation.
2) Bank Confirmation should be taken from each bank with whom the client transit.
3) Balance of client bank reconciliation need to be confirmed with the balance of bank confirmation.
4) Minutes of the Board meeting and loan agreement should be reviewed in order to ensure that all the interest bearing deposit has been properly dealt with in the accounts.
3) Key Assertion Addressed by the Test Procedure is as follows:
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