QUESTION 35

1. The items below are possible errors and fraud that an auditor suspects are present. For each item, select from the list provided the auditing procedure(s) that the auditor would most likely perform to gather evidence in support of that item concerning possible errors and fraud. For each item, select one or two procedures, as indicated. For the item(s) that require two answers, you must enter the answers in the same relative order as they appear on the selection list. The procedures on the list may be selected once, more than once, or not at all.

The auditor suspects that a kiting scheme

exists because an accounting department

employee who can issue and record checks

seems to be leading an unusually luxurious lifestyle.

(Select only 1 procedure)

The auditor suspects that the controller

wrote several checks and recorded the cash

disbursements just before the year-end but

did not mail the checks until after the first

week of the subsequent year.

(Select only 1 procedure)

The entity borrowed funds from a

financial institution. Although the

transaction was properly recorded,

the auditor suspects that the loan

created a lien on the entity's real estate

that is not disclosed in its financial statements.

(Select only 1 procedure)

The auditor discovered an unusually

large receivable from one of the entity's

new customers. The auditor suspects

that the receivable may be fictitious

because the auditor has never heard

of the customer and because the auditor's

initial attempt to confirm the receivable

has been ignored by the customer.

(Select 1 of 2 procedures)Note:This

question is a repeat of the previous

question so that you can enter the

second procedure.

The auditor discovered an unusually large

receivable from one of the entity's new customers.

The auditor suspects that the receivable may

be fictitious because the auditor has never

heard of the customer and because the auditor's

initial attempt to confirm the receivable has

been ignored by the customer.

(Select 2 of 2 procedures)

The auditor suspects that fictitious

employees have been placed on the

payroll by the entity's payroll supervisor,

who has access to payroll records and

to the paychecks. (Select only 1 procedure)

The auditor suspects that selected

employees of the entity received

unauthorized raises from the entity's

payroll supervisor, who has access to

payroll records. (Select only 1 procedure)

The answers should come from the list below:

1.Compare the details of the cash receipts journal entries with the details of the corresponding daily deposit slips.

2.Scan the debits to the fixed asset accounts and vouch selected amounts to vendors' invoices and management authorization.

3.Perform analytical procedures that compare documented authorized pay rates to the entity's budget and forecast.

4.Obtain the cutoff bank statement and compare the cleared checks to the year-end bank reconciliation.

5.Put together a bank transfer schedule.

6.Inspect the entity's deeds to its real estate.

7.Make inquiries of the entity's attorney concerning the details of real estate transactions.

8.Confirm the terms of borrowing arrangements with the lender.

9.Examine selected equipment repair orders and supporting documentation to determine the propriety of the charges.

10.Send requests to confirm the entity's accounts receivable on a surprise basis at an interim date.

11.Send a second request for confirmation of the receivable to the customer and make inquiries of a reputable credit agency concerning the customer's creditworthiness.

12.Examine the entity's shipping documents to verify that the merchandise that produced the receivable was actually sent to the customer.

13.Inspect the entity's correspondence files for indications of customer disputes or for evidence that certain shipments were on consignment.

14.Perform edit checks of data on the payroll transaction tapes.

15.Inspect payroll check endorsements for similar handwriting.

16.Observe payroll check distribution on a surprise basis.

17.Vouch data in the payroll register to documented authorized pay rates in the human resources department's files.

18.Reconcile the payroll checking account and determine if there were unusual time lags between the issuance and payment of payroll checks.

19.Inspect the file of prenumbered vouchers for consecutive numbering and proper approval by an appropriate employee.

20.Determine that the details of selected prenumbered vouchers match the related vendor's invoices.