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business
auditing 12th

Questions and Answers of Auditing 12th

The cashier of the Edgemont Company intercepted customer A's check, payable to the company in the amount of \(\$ 500\), and deposited it in a bank account which was part of the company petty cash
You are auditing the Alaska Branch of Far Distributing Co. This branch has substantial annual sales which are billed and collected locally. As a part of your audit you find that the procedures for
Charting, Inc., a new audit client of yours, processes its sales and cash receipts documents in the following manner:1. Payment on account. The mail is opened each morning by a mail clerk in the
PML Manufacturing, Inc., a privately held corporation, manufactures office equipment. The cash receipts portion of the revenue cycle is described below:1. Mail is opened in the mailroom. Remittances
Untii recently, Consolidated Electricity Company employed a batch processing system for recording the receipt of customer payments. The following narrative describes the procedures involved in this
Empire Oil Company, an integrated oil company, operates throughout the United States.Empire's treasury department is made up of two sections. One section handles cash receipts, and one section
What classes of transactions are included in the expenditure cycle?
What departments report to (a) the vice-president of manufacturing and (b) the controller in the expenditure cycle?
What are the materiality and audit risks associated with purchases and cash disbursements transactions?
The purchasing aspect of this cycle extends only to the acquisition of inventory items and cash disbursements applies to all payments. Discuss the validity of these assertions.
Identify the functions pertaining to the executing and the recording of purchases and cash disbursements transactions and custody of related assets.
Indicate the specific internal accounting control objectives and a proper departmental assignment of duties for the first four functions involved in executing purchase transactions.
a. What authorizations are necessary in executing purchases transactions?b. What errors and irregularities may occur when these transactions are not authorized?
Describe the primary activities of (a) the receiving, (b) stores, and (c) vouchers payable departments in executing transactions.
Enumerate the steps in (a) preparing vouchers and (b) issuing checks.
What are the specific accounting control objectives for the three functions involved in recording purchases and cash disbursements?
How may physical controls be used for these two classes of transactions?
State the steps in the audit program for the tests of transactions in a manual system that may involve the use of a random sample.
a. What is a proof of cash?b. What type of test is a proof of cash?c. How should a proof of cash be prepared?d. Explain the treatment of reconciling items in a proof of cash.
Identify the steps involved in designing an attribute sampling plan for cash disbursements?
Identify six attributes that may be applicable when the objective is testing for the proper preparation of checks.
Explain the nature of the magnetic tape symbols shown in Figure 9-10.Figure 9-10 Data Control Data Entry From Voucher Pavable Kevpunch and Verify Computer Processing Run 1 Card to Tape, Balance. and
What aspects of the EDP system are subject to testing by the use of (a) test data and (b) generalized audit software?
Identify six types of invalid data that you might use in testing cash disbursements.
The following questions appear in Figures 9-4 and 9-5:1. Are imprinted and prenumbered checks used?2. Is each check supported by an approved voucher?3. Is supporting documentation mutilated after
The following control procedures over purchases and cash disbursements transactions are prescribed by the Merlin Company:1. Approved purchase order for each purchase.2. Prenumbered receiving report
Assume the following exceptions to prescribed control procedures over purchases and cash disbursements transactions occurred in the Theor Company:1. An unauthorized purchase requisition was
The Zero Company asks you to prepare a partial proof of cash for its regular bank account for the month of December 19X0.1. The bank statement for December is correct except that the bank incorrectly
In connection with your audit of the \(A B C\). Company at December 31, 19X0, you were given a bank reconciliation by a company employee which shows balance per bank \(\$ 15,267\), deposits in
You are involved in an attribute sampling plan for testing the proper execution of vouchers in the Hickox Company. You elect to use the attributes shown in Figure 9-9 for testing. Your planned and
Long, CPA, has been engaged to examine and report on the financial statements of Maylou Corporation. During the review phase of the study of Maylou's system of internal accounting control over
The following information was obtained in an audit of the cash account of Tuck Company as of December 31, 19X0. Assume that the CPA has satisfied himself as to the validity of the cash book, the bank
Western Meat Processing Company buys and processes livestock for sale to supermarkets. In connection with the examination of the company's financial statements, you have prepared the following notes
During your examination of the financial statements of the Gary Manufacturing Company for the year ended December 31, 19X0, you find that at January 1, 19X0, the company has installed the following
William Green recently acquired the financial controlling interest of Importers and Wholesalers, Inc., importers and distributors of cutlery. In his review of the duties of employees, Mr. Green
Kent County Grain and Milling Company decided to stimulate the sale of its flour by including a coupon, redeemable for fifty cents ( \(50 q\) ), in every 25 - and 50 -pound sack of flour produced
Anthony, CPA, prepared the flowchart on page 349 which portrays the raw materials purchasing function of one of Anthony's clients, a medium-sized manufacturing company, from the preparation of
You have completed an audit of activities within the Purchasing Department of Zale Company. The department employs thirty buyers, seven supervisors, a manager, and clerical personnel. Purchases total
What are the functions in (a) executing, (b) recording, and (c) custody of payroll transactions?
Briefly explain the materiality and audit risk associated with payroll transactions.
Indicate the specific internal accounting control objectives in (a) hiring, (b) preparing the payroll, and (c) paying the payroll.
What authorizations are required for payroll transactions? For each authorization identify the department or individual who should make the authorization.
Explain the primary activities of the (a) timekeeping and (b) payroll departments.
Distinguish between a payroll summary and a payroll register.
Diagram the flow of payroll data within (a) the timekeeping and (b) the payroll departments.
Diagram the flow of payroll data within general accounting.
What control procedures should be prescribed and followed for proper custody over assets pertaining to payroll transactions?
Explain the applicability of independent internal verification to payroll transactions.
Describe the steps of the audit program for testing payroll transactions in a manual system that uses a random sample.
What controls should be observed in witnessing the distribution of a payroll?
What sampling units may be used in attribute sampling of payroll transactions?
Explain the nature of the production cycle.
Identify the departments reporting to the vice-president of production?
Enumerate the functions related to the production cycle.
Indicate the specific accounting control objectives for each function in the execution of manufacturing transactions.
Indicate the purposes served by production orders in the production cycle.
What purposes are served by accounting records and procedures in the production cycle?
The following questions are included in Figure 10-3:1. Are hirings, pay rates, payroll deductions, and terminations a:t thorized in writing by the personnel department?2. Are payroll deduction
The following controi procedures over payroll transactions are prescribed by the Hahn Company:1. Operating department requisition for each hiring.2. Personnel department authorizations for
Assume the following exceptions to prescribed control procedures over payroll transactions occurred in the Haze Company:1. A fictitious employee is on payroll.2. A fictitious pay rate is used in
In the Sumet Company, two employees were terminated for falsifying their time records. The two employees had altered overtime hours on their time cards after their supervisors had approved the hours
The Kowal Manufacturing Company employs about fifty production workers and has the following payroll procedures.The factory foreman interviews applicants and on the basis of the interview either
In connection with his examination of the financial statements of the Olympia Manufacturing Company, a CPA is reviewing procedures for accumulating direct labor hours. He learns that all production
The Generous Loan Company has 100 branch loan offices. Each office has a manager and four or five subordinates who are employed by the manager. Branch managers prepare the weekly payroll, including
You are engaged in auditing the financial statements of Henry Brown, a large independent contractor. All employees are paid in cash because Brown believes this arrangement reduces clerical expenses
The Vane Corporation is a manufacturing concern which has been in business for the past eighteen years. During this period, the company has grown from a very small family-owned operation to a
The prescribed control procedures over manufacturing transactions in the Adrian Company are as follows:1. Bills of materials for each production order.2. Authorized production order for each job or
The following errors or irregularities could occur in the executing and recurding of manufacturing transactions and in the safeguarding of work in process in the Leslie Company:1. Goods of inferior
You have been engaged by the management of Alden, Inc. to review its internal control over the purchase, receipt, storage, and issue of raw materials. You have prepared the following comments which
Identify the three techniques of estimating dollar values.
What are the two risks an auditor faces in using estimation sampling for variables?
Explain the meaning of the following terms in variables sampling: (a) precision, (b) reliability, and (c) variability.
Distinguish among the terms (a) normal distribution, (b) population standard deviation, (c) sample standard deviation, and (d) distribution of the sample means.
a. What is meant by the term standard error of the mean?b. What is the formula for computing the standard error?c. What alternative terms may be used for this term?
How should the objective of a variable sampling plan be stated in a two-tail test?
How does the auditor control the risk of rejecting a fairly stated book value?
How may the auditor estimate the population standard deviation?
Give the formula for calculating sample size. Define each part of the formula.
What steps are involved in drawing the sample and computing the sample mean and sample standard deviation?
Give the formula and accompanying explanation of terms for computing achieved precision.
Define alpha and beta risks.
What factors should be considered in setting alpha risk? How is this risk controlled?
What factors are relevant in setting beta risk?
What is ultimate risk? Give and explain the formula for ultimate risk.
What is combined reliability?
a. What factors are relevant in controlling beta risk?b. Indicate the formula for controlling this risk.
a. What alternatives exist when a book value is unacceptable?b. What factors affect the amount of any proposed adjustment?
a. Distinguish between ratio and difference estimation.b. What conditions are necessary to use these techniques?
Enumerate the steps in using (a) ratio and (b) difference estimation.
The following data apply to each of four different populations:Required:a. Compute the planned beta risk for each population.b. Calculate the precision to be used in determining sample size for each
Four different populations and related statistical objectives are:Required:a. Compute the sample size for each population.b. Assuming the standard deviation of the sample values is 20 percent lower
Data pertaining to four populations are presented below:Required: For each population,a. Compute the new precision \(\left(A^{\prime \prime}\right)\) and the precision interval.b. Indicate whether
Data relative to three sampling plans are presented below:Required:Calculate sample size in each of the plans. Show computations. Materiality Size of population Desired reliability Estimated
An audit client has an inventory of 10,000 head of beef cattle (steers). The steers were purchased at various dates and varying prices. In view of the dollar amounts involved, \(\$ 150,000\) is
This question is designed to test your knowledge of alpha and beta risks in estimation sampling for variables.Required:a. Compute the maximum planned beta risk to specify in a statistical test for
A contractor has 1,515 homes in various stages of construction. From a random presample of 50 homes, you determine that the estimated population standard deviation is \(\$ 2,000\). On the basis of
You are engaged in the annual examination of The Mountainview Corporation, a wholesale office supply business, for the year ended September 30. A review of internal control has revealed substantial
In planning the audit of accounts receivable, you decide to select accounts for confirmation using a variables estimation sampling plan. A major reason for your decision is the advantage of being
The following facts relative to a variables sampling plan are presented in random order:1. Combined reliability is 95 percent.2. Materiality is \(\$ 80,000\).3. Audited value of sample items is \(\$
You desire to evaluate the reasonableness of the book value of the inventory of your client, Draper, Inc. You satisfied yourself earlier as to inventory quantities. During the examination of the

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