Susan Hill was examining controls for the authorization of cash disbursements. She selected cash disbursement entries made throughout the year and vouched them to paid invoices and canceled checks bearing the initials and signatures of employees authorized to approve the disbursements. She performed the work on September 30 when the company had issued checks numbered 43921 to 52920. Because 9,000 checks had been issued in nine months, she reasoned that 3,000 more could be issued in the three months before the December 31 year- end. About 12,000 checks 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 checks in the sample that were issued before September 30, and she held the other 20 randomly selected check numbers for later use. She found no deviations in the sample of 80, a finding that, in the circumstances, would cause her to assign a low (20 percent) control risk to the probability that the system would permit improper charges to be recorded in expense and purchase/ inventory accounts.

Prepare a memorandum to the audit manager (dated October 1) describing the audit team’s options with respect to evaluating control performance for the period from October through December.

  • CreatedOctober 27, 2014
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