Ritter Tire Warehouse Company had a high volume truck and passenger car tire business in Hamilton, Ontario
Fantastic news! We've Found the answer you've been seeking!
Question:
Jay often prepared the purchase orders, and the manufacturers were directed to deliver the tires to a warehouse in Milton (a town of 60,000, about 30 kilometres north of Hamilton). Ritter Tire received the manufacturers' invoices, which Jay approved for payment. Jay and an accomplice (his sister-in-law) sold the tires from the Milton Warehouse and pocketed the money. At night, Jay moved cheaper retread tires into the Ritter warehouse so that the space would not be empty. As chief accountant, Jay could override controls e.g., approving invoices for payment without a receiving report, and T. Ritter (President) never knew the difference because the cheques presented for her signature were not accompanied by the supporting documents.
Audit Trail
Ritter Tire's files were well organized. Each cheque copy had supporting documents attached (invoice, receiving report, purchase order), except for the misdirected tire purchases, which had no receiving reports. These purchase orders were all signed by Jay, and the shipping destination on them was the Milton address. There were no purchase requisition documents because "requisitions" were in the form of verbal requests from salespersons. There was no paper evidence of the retread tires because Jay simply bought them and moved them in at night when nobody was around. Ritter engaged external auditors for the first time in the third year of Jay's scheme, after experiencing a severe cash squeeze.
Required:
1. State the audit objectives of the case.
2. Discuss the controls relevant to the process. Describe the tests of controls you will use as auditor. Were the controls effective?
3. Discuss the tests of details of balances you would use.
Related Book For
Auditing and Assurance Services
ISBN: 978-0077862343
6th edition
Authors: Timothy Louwers, Robert Ramsay, David Sinason, Jerry Straws
Posted Date: