Question: Sea Duds is retail clothing store specializing in resort clothing

Sea Duds is retail clothing store specializing in resort clothing. The company purchases finished goods – apparel and accessories, and its other payments are typical operating costs such as rent, utilities, and payroll. When bills are received and input to be paid the software of the computer system requires certain information, such as the number from the chart of accounts and the company or person being paid. All of this information must match vendor names, employee information and accounts that have been previously approved by management and input to a master file. If the information input for a check to be created does not match the pre-approved information, the transaction is rejected and an exception report is printed. The clerk who entered the information investigates and resolves any exceptions identified. After the information is input, exceptions resolved and checks are printed the owner of the store reviews the supporting detail for each check and personally signs the check. The owner initials the supporting document package at the time of review. Any exception reports that were generated as a result of the input process also go to the owner with the checks, and are reviewed to be sure the proper corrections were made. Once every two weeks the owner reviews a cash disbursement report for the period, and at least once each month a general ledger report, the bank statement and a bank reconciliation prepared by a different clerk than the one who inputs the bills for processing.

(a) Identify the controls present in this cash disbursements process and the errors they are designed to prevent or detect.
(b) What documentary evidence is available to the auditor?
(c) What audit procedures can the auditor use to test the operations of these controls?

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  • CreatedJanuary 21, 2015
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