Question: The accounting firm of Mason Jarr performed the work

The accounting firm of Mason & Jarr performed the work described in each separate case below. The two partners are worried about properly applying standards regarding audit sampling. They have asked for your advice.

Write a report addressed to them, stating whether they did or did not observe the essential elements of audit sampling standards in each case:
a. Mason selected three purchase orders for raw materials from the LIZ Corporation files, and from there traced each one through the accounting system. He saw the receiving reports, purchasing agent’s approvals, receiving clerks’ approvals, the vendors’ invoices (now stamped paid), the entry in the cash disbursement records and the cancelled cheques. This work gave him a firsthand familiarity with the cash disbursement system, and he felt confident about understanding related questions in the internal control questionnaire completed later.
b. Jarr observed the inventory taking at SER Corporation. She had an inventory list of the different inventory descriptions with the quantities taken from the perpetual inventory records. She selected the 200 items with the largest quantities and counted them after the client’s shop foreman had completed his count. She decided not to check out the count accuracy on the other 800 items. The shop foreman miscounted in 16 cases. Jarr concluded the rate of miscount was 8%, so as many as 80 of the 1000 items might be counted wrongly. She asked the foreman to recount everything.
c. CSR Corporation issued seven series of short-term commercial paper notes near the fiscal year-end to finance seasonal operations. Jarr confirmed the obligations under each series with the independent trustee for the holders, studied all seven indenture agreements and traced the proceeds of each issue to the cash receipts records.
d. At the completion of the EH&R Corporation audit, Mason obtained written representations, as required by auditing standards, from the president, the chief financial officer, and the controller. He did not ask the chief accountant at headquarters or the plant controllers in the three divisions for written representations.

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  • CreatedJanuary 09, 2015
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