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auditing 12th

Questions and Answers of Auditing 12th

You have made a review and preliminary evaluation of the Morgan Company's system of internal conirol, and based on this, you have designed a tentative audit program. Your next step is to perform
You have completed your review and preliminary evaluation of internal accounting controls over the purchasing, accounts payable, and cash disbursements system of Riley Corporation, which has been
What elements are generally included in an EDP system?
Distinguish between computer hardware and software.
a. Why is documentation important to (1) management and (2) the auditor?b. Distinguish between a computer run and a run manual.
Distinguish between a master file and a transaction file in an EDP system and indicate the counterpart of each in a manual system.
What are the primary characteristics of (a) sequential and (b) random processing?
What procedure(s) may be used to (a) prevent unauthorized use of data files and (b) have adequate replacement capability for lost or damaged files?
Distinguish between general and application controls and indicate the relative importance of each category.
Indicate the procedures that are helpful in assuring proper systems development and documentation controls.
Hardware controls relate to access to computer equipment. Do you agree? Why or why not?
What role does a data control group play in an EDP system?
What specific aspects of data processing are included in input controls?
Identify and briefly describe the principal types of (a) processing controls and (b) output controls.
Discuss the applicability of GAAS in an EDP system and the extent of knowledge needed by a general audit staff member to meet the first genera! standard.
What are the basic audit differences between an E.DP and a manual system?
Contrast the different steps that are required in reviewing internal controls under the second standard of field work between a manual and an EDP system.
Contrast the purposes of (a) the preliminary review, (b) the preliminary review assessment, (c) completion of the review, and (d) the completion of review assessment.
What methods are used in (a) the preliminary review and (b) the completion of the review.
What factors may cause an auditor to discontinue the review after the preliminary phase?
What circumstances in an EDP system may lead to (a) similar and (b) different forms of compliance testing than in a manual system?
What are the advantages and disadvantages of auditing without the computer?
Contrast testing by (a) parallel simulation, (b) test data, and (c) integrated test facility.
Identify and briefly explain the major differences in EDP controls in an online realtime system.
Describe the primary techniques for testing OLRT systems.
Briefly discuss the auditing implications of using computer service centers.
Identify the major uses of the computer in substantive testing.
Eight categories of EDP accounting control procedures are identified in the chapter. Listed below are a number of specific control procedures:1. EDP manager reports to chief financial officer.2.
The plan of organization is an important aspect of an EDP activity.Required:a. Diagram an appropriate structure for an EDP department.b. Briefly describe the primary responsibilities of each
When auditing an EDP accounting system, the independent auditor should have a general familiarity with the effects of the use of EDP on the various characteristics of accounting control and on the
A well-designed management information system using EDP equipment will include methods of assuring that the data are appropriate to the situation and are accurate.Required:a. Describe procedures that
The following five topics are part of the relevant body of knowledge for CPAs having field work or immediate supervisory responsibility in audits involving a computer:1. EDP equipment and its
The requirement to make a study and evaluation of internal control applies regardless of the method of data processing used by a company. However, the methodology of complying with this standard may
You are performing an audit of the EDP function of a chemical company with about \(\$ 150\) million in annual sales. Your preliminary review discloses the following points:1. The EDP manager reports
To test the effectiveness of general controls in an EDP system, the auditor may perform the following procedures:1. Trace selected program changes to supporting documentation.2. Review and evaluate
Listed below are a number of errors or irregularities pertaining to application controls in an EDP system:1. An incorrect file is updated.2. Output is distributed to unauthorized users.3. Input data
CPAs may audit "around" or "through" computers in examining financial statements of clients who use computers to process accounting data.Required:a. Describe the auditing approach referred to as
You have been engaged by Central Savings and Loan Association to examine its financial statements for the year ended December 31, 19X1. The CPA who examined the financial statements at December 31,
The independent auditor must evaluate a client's system of internal control to determine the extent to which various auditing procedures must be employed. A client who uses a computer should provide
George Beemster, CPA, is examining the financial statements of the Louisville Sales Corporation, which recently installed an off-line electronic computer. The following comments have been extracted
"The EDP function ran in a mode that courted disaster but left the EDP staff apparently isolated from knowledge of the fraud. An open shop functioned where a central staff developed and ran the
"In late March, a programmer made a minor change in the program that was used to update the New York City Department of Social Services' master file. Because the revision was "trivial," the program
You have been assigned to the annual audit of Explosives, Inc. You contact the senior, Bob Good, as instructed and arrange a date to discuss the client and the current year's audit.At your meeting
Describe the nature of the revenue cycle and identify the three classes of transactions that are part of this cycle.
Identify the departments that report to the (a) vice-president of sales, (b) vice-president of finance, and (c) controller.
State the framework of internal control objectives for revenue cycle transactions.
Indicate (a) the functions and (b) the internal accounting control principles that pertain to the executing and recording of sales transactions and custody of assets.
How important are sales transactions in the typical audit engagement?
a. What are the specific accounting control objectives for each of the functions involved in executing sales transactions?b. Indicate an appropriate segregation of duties among the departments
a. When are authorizations required in existing sales transactions?b. What errors and irregularities may occur when sales transactions are not authorized?
a. Identify the specific internal accounting control objectives for each function associated with the recording of sales transactions.b. Indicate an appropriate segregation of duties for these
Indicate the flow of sales orders and sales invoices in the manual execution of sales transactions.
a. What internal accounting control principles are applicable to the custody of assets in the revenue cycle?b. Indicate two applications of each principle.
a. What are the purposes of making a preliminary evaluation of accounting controls over sales transactions?b. How are these objectives met?
Does the overstatement or understatement of sales represent the greater audit risk? Why?
Identify five errors and irregularities that may occur in (a) executing and (b) recording sales transactions.
State the steps in the audit program for testing sales transactions in a manual system that pertain to the use of a random sample.
Identify other steps in the audit program that apply to the recording of transactions and the custody of assets.
a. What sampling units may be used when the audit objective is (1) proper executing and (2) proper recording of sales transactions?b. When is it preferable to use (a) shipping documents and (b) sales
Why does the form of an occurrence affect the auditor's interpretation of sample results?
What are the uses of a random sample of punched cards in testing application controls over sales transactions in an EDP system?
How may test data and generalized audit software be used in testing EDP application controls over sales transactions?
The internal control questionnaire in Figure 7-4 includes the following questions:1. Are all credit sales approved by credit department?2. Are all sales orders authorized as to prices and terms?3.
The following control procedures over sales transactions are prescribed by the Harlan Company:1. Credit department approval of credit sales.2. Sales invoice for each shipping document.3. Internal
Assume the following exceptions to prescribed control procedures over sales transactions occurred in the Lane Company:1. A shipment to a bona fide customer was not billed.2. A sales invoice was
In your interim work on the sales transactions of the Carlean Company, you elect to use the attributes shown in Figure 7-7. Assume, however, the following:The population consists of 7,000 prenumbered
A partially completed charge sales systems flowchart. The flowchart depicts the charge sales activities of the Bottom Manufacturing Corporation.A customer's purchase order is received and a six-part
The customer billing function of the Robinson Company, a small paint manufacturer, is attended to by a receptionist, an accounts receivable clerk and a cashier who also serves as a secretary. The
Your examination of the financial statements of General Department Store, Inc. disclosed the following:1. The store has 30,000 retail accounts which are billed monthly on a cycle basis. There are
The Meyers Pharmaceutical Company, a drug manufacturer, has the following system for billing and recording accounts receivable:1. An incoming customer's purchase order is received in the order
Huron Company manufactures and sells eight major product lines with fifteen to twenty-five items in each product line. All sales are on credit, and orders are received by mail or telephone. Huron has
John Carr, controller for the General Corporation, provides you with the following information relative to the company's sales system:The sales department prepares a six-part sales invoice form from
The Joppa Corporation's sales department receives all sales order (mail or phone), prepares the sales order form, and forwards a copy to the credit manager for credit approval. On indicating
The Alpha Company is a medium-sized company which assembles robots from parts and subassemblies ordered to specification. All work done by outside processors is completed prior to the time the Alpha
Indicate the scope of cash receipts and sales adjustments transactions in the revenue cycle.
What are the functions in executing and recording these two classes of transactions and custody of related assets?
Discuss the personnel and sound practices aspects of an internal control environment that relate to cash receipts transactions.
Contrast the relative importance of cash receipts and sales adjustments transactions in the typical audit engagement.
Identify the specific internal accounting control objective and appropriate division of duties for each function involved in executing cash receipts transactions.
What authorizations are required in executing (a) cash receipts and (b) sales adjustments transactions?
Describe the activities of each department that participates in the execution of cash receipts transactions.
Briefly discuss the use of cash registers, prelists, and daily cash summaries in controlling cash receipts.
Diagram the flow of data within the cashier's department when a company has both over-the-counter and mail receipts.
Identify the control procedures that offer reasonable assurance that cash receipts are deposited intact daily.
What accounting control principles are applicable to the recording of cash receipts and sales adjustments transactions?
Diagram the flow of data within general accounting in recording cash receipts transactions.
How does a lockbox system contribute to internal control over cash receipts.
a. What is lapping?b. What internal control principles will prevent or detect this irregularity?c. What test of transactions may detect lapping?
Contrast the objectives of comparing (a) totals of deposit slips with cash summaries and (b) details of deposit slips with individual entries in the cash receipts journal?
State the steps in the audit program for testing cash receipts transactions in a manual system that involves the use of a random sample.
Contrast the testing of sales adjustments for (a) overstatement and (b) understatement.
What sampling units may be used in attribute sampling of cash receipts transactions?
Describe or illustrate the two ways the attribute, proper granting of cash discounts, can be stated in a sampling plan.
Briefly explain the manner in which (a) input and output controls and (b) processing controls may be tested when an EDP system is used for cash receipts transactions.
Jerome Paper Company engaged you to review its internal control system. Jerome does not prelist cash receipts before they are recorded and has other weaknesses in processing collections of trade
The following control procedures over cash receipts transactions are prescribed by the David Company:1. Restrictive endorsement of checks upon receipt.2. Daily cash register readings and cash counts
Assume the following exceptions to prescribed control procedures over cash receipts transactions occurred in the Janz Company:1. A mail remittance was misappropriated after receipt.2. A cash sale was
This is a continuation of comprehensive question.1. Since the Robinson Company is short of cash, the deposit of receipts is also expedited. The receptionist turns over all mail receipts and related
The town of Commuter Park operates a private parking lot near the railroad station for the benefit of town residents. The guard on duty issues annual prenumbered parking stickers to residents who
You have been asked by the board of trustees of a local church to review its accounting procedures. As a part of this review, you have prepared the following comments relating to the collections made

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