Question: Auditor Magann was auditing the authorization control over cash disbursements

Auditor Magann was auditing the authorization control over cash disbursements. She selected cash disbursement entries made throughout the year and vouched them to paid invoices and cancelled cheques bearing the initials and signatures of people authorized to approve the disbursements. She performed the work on September 30, when the company had issued cheques numbered from 43921 to 52920. Since 9000 cheques had been issued in nine months, she reasoned that 3000 more could be issued in the three months before the December 31 year-end. About 12,000 cheques had been issued last year. She wanted to take one sample of 100 disbursements for the entire year, so she selected 100 random numbers in the sequence 43921 to 55920. She audited the 80 cheques in the sample that were issued before September 30, and she held the other 20 randomly selected cheque numbers for later use. She found no deviations in the sample of 80—a finding that would, in the circumstances, cause her to assign a low (20%) control risk to the probability that the system would permit improper charges to be hidden away in expense and purchase inventory accounts.

Take the role of Magann and write a memo to the audit manager (dated October 1) describing the audit team’s options with respect to evaluating control performance for the remaining period, October through December.

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  • CreatedJanuary 09, 2015
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