This simulation presents the Keystone Computers & Networks, Incorporated (Keystone) Cash Work Memo for the general account and petty cash prepared by two members of your audit teamyour responsibility is to evaluate various statements included in that document, considering the various exhibits. Background financial and other information on Keystone is included in Appendix 6C of Chapter 6.

The controller of Keystone Computers & Networks Incorporated (Keystone), a nonissuer, prepared six exhibits relating to Keystones General Account cash position at year 5 year-end. A new audit assistant with your CPA firm has begun the audit of cash but has a number of questions and comments based on a quick examination of the exhibits, now included in the working papers, and a discussion of some matters with the controller of Keystone.

Required:

Your job as senior on the engagement is to review the various points made by the assistant, including consideration of the exhibits. For each of the sentences called out in the points on the document, determine if the current language is appropriate as is, should be removed altogether, or replaced with any of the provided alternatives. Links to each of the exhibits are provided in the document, but are available in the list below for convenience.

Exhibit 1 - Cash Lead Schedule

Exhibit 2 - Bank ReconciliationGeneral Account

Exhibit 3 - Standard Bank Confirmation

Exhibit 3 Text Alternative

Exhibit 4 - Deposit in Transit

Exhibit 4 Text Alternative

Exhibit 5 - Outstanding ChecksGeneral Account

Exhibit 6 - Bank Transfer ScheduleGeneral Account

Document

(For each Document Callout, choose the correct Determination from the table below.)

To:	Audit Senior
From:	Audit Assistant
Re:	Keystone Computers & Networks Incorporated General Account Cash Work
Date:	January 11, year 6

I have a number of points related to the auditing procedures I applied to Keystones cash accounts as follows:

1. Cash Lead Schedule (Exhibit 1): The companys petty cash (account 101) is stated at $50. But the petty cash custodian acknowledges that there was only $41 in the account as of year-end because a $9.00 expenditure for supplies had been made. This overstates cash by $9.00, although pass adjustment due to immateriality. (Callout #1)
2. Bank Reconciliation (Exhibit 2): The account receivable collected by the bank was paid by a client directly to the bank on December 29, year 5. Keystone recorded the entry for the proper amount on January 2, year 6. No adjusting entry is needed as of 12/31/year 5. (Callout #2)
3. Standard Bank Confirmation (Exhibit 3): The bank representative added a comment to the confirmation. The comment is a boilerplate disclaimer of liability that definitely does not affect the reliability of the information we obtained. (Callout #3)
4. Deposit in Transit (Exhibit 4): The deposit in transit seems properly handled on the bank reconciliation (Exhibit 2) with a debit to cash. (Callout #4)
5. Outstanding Checks (Exhibit 5) and Bank Transfer Schedule (Exhibit 6): Check 2034 from the bank transfer schedule was omitted from the list of outstanding checks. This is because it was not written until 1/1/year 6. (Callout #5)
6. Outstanding Checks (Exhibit 5): The long-outstanding check for $200 will probably never be cashed as the company has attempted to communicate with the payee and failed. Because the state does not require submission of such funds, we should suggest to the client that the $200 check be deleted from the outstanding check list; no adjusting journal entry seems necessary. (Callout #6)
7. Outstanding Checks (Exhibit 5): Keystones first bank statement in year 6 included check 2027 dated on 12/30 for $1,500 to Jenco Corp. I found the check to be properly recorded in the cash disbursements journal as of 12/30/year 5. No further audit response is necessary related to check 2027. (Callout #7)
8. Bank Transfer Schedule (Exhibit 6): Check 2032 appears to result in the cash being recorded in both accounts per books as of year-end and thus overstates total cash by $1,500 at year-end. (Callout #8)
9. All 4 comes with the same two selections

\begin{tabular}{|c|c|} \hline Callouts & Determination \\ \hline 1. "...although pass adjustment due to immateriality." & Retain the original text. \\ \hline 2. "No adjusting entry is needed as of 12/31/ year 5." & \begin{tabular}{l} Replace with "We should propose an adjusting entry as of \\ 12/31/ year 5 debiting cash and crediting accounts receivable for \\ $6,000." \end{tabular} \\ \hline \begin{tabular}{l} 3. "The comment is a "boilerplate" disclaimer of liability \\ that definitely does not affect the reliability of the \\ information we obtained." \end{tabular} & \begin{tabular}{l} Replace with "This comment (disclaimer) on the confirmation may \\ cast doubt about the completeness and accuracy of the \\ information contained in the response and, accordingly, we should \\ obtain further audit evidence. \end{tabular} \\ \hline \begin{tabular}{l} 4. "The deposit in transit seems properly handled on the \\ bank reconciliation (Exhibit 2) with a debit to cash." \end{tabular} & \begin{tabular}{l} Replace with "The deposit in transit is likely to be an interbank \\ transfer between the general account and the special \\ account." \end{tabular} \\ \hline \multirow[t]{2}{*}{ 5. "This is because it was not written until 1/1/year 6."} & Retain the original text. \\ \hline & Delete entire point 4 . \\ \hline \begin{tabular}{l} 6. "....be deleted from the outstanding check list; no \\ adjusting journal entry seems necessary." \end{tabular} & \begin{tabular}{l} Replace with "The deposit in transit is likely to be an interbank \\ transfer between the general account and the special account." \end{tabular} \\ \hline \begin{tabular}{l} 7. "No further audit response is necessary related to \\ check 2027." \end{tabular} & \begin{tabular}{l} Replace with "The deposit in transit should be included on the \\ bank transfer schedule." \end{tabular} \\ \hline \end{tabular} \begin{tabular}{|c|c|} \hline Callouts & Determination \\ \hline 1. "...although pass adjustment due to immateriality." & Retain the original text. \\ \hline 2. "No adjusting entry is needed as of 12/31/ year 5." & \begin{tabular}{l} Replace with "We should propose an adjusting entry as of \\ 12/31/ year 5 debiting cash and crediting accounts receivable \\ for $6,000." \end{tabular} \\ \hline \begin{tabular}{l} 3. "The comment is a "boilerplate" disclaimer of \\ liability that definitely does not affect the reliability of \\ the information we obtained." \end{tabular} & \begin{tabular}{l} Replace with "This comment (disclaimer) on the confirmation \\ may cast doubt about the completeness and accuracy of the \\ information contained in the response and, accordingly, we \\ should obtain further audit evidence." \end{tabular} \\ \hline \begin{tabular}{l} 4. "The deposit in transit seems properly handled on \\ the bank reconciliation (Exhibit 2) with a debit to \\ cash." \end{tabular} & \begin{tabular}{l} Replace with "The deposit in transit is likely to be an interbank \\ transfer between the general account and the special \\ account." \end{tabular} \\ \hline 5. "This is because it was not written until 1/1/ year 6." & Replace with "This is because it was written in year 4." \\ \hline \begin{tabular}{l} 6. "...be deleted from the outstanding check list; no \\ adjusting journal entry seems necessary." \end{tabular} & \begin{tabular}{l} Replace with "be deleted from the check list, with a possible \\ adjusting journal entry proposed debiting cash and crediting a \\ miscellaneous revenue type account." \end{tabular} \\ \hline \begin{tabular}{l} 7. "No further audit response is necessary related to \\ check 2027." \end{tabular} & \begin{tabular}{l} Replace with "We should perform further procedures to \\ determine why the account reconciliation excludes this item, \\ which should be listed as a deposit in transit as of year-end." \end{tabular} \\ \hline \begin{tabular}{l} 8. "Check 2032 appears to result in the cash being \\ recorded in both accounts per books as of year-end \\ and thus overstates total cash by $1,500 at year- \\ end." \end{tabular} & \begin{tabular}{l} Replace with "The transaction related to Check 2032 is either \\ a deposit or a withdrawal; it can't be both." \end{tabular} \\ \hline \end{tabular} \begin{tabular}{|c|c|} \hline Callouts & Determination \\ \hline 1. "...although pass adjustment due to immateriality." & Retain the original text. \\ \hline 2. "No adjusting entry is needed as of 12/31/ year 5." & \begin{tabular}{l} Replace with "We should propose an adjusting entry as of \\ 12/31/ year 5 debiting cash and crediting accounts receivable for \\ $6,000." \end{tabular} \\ \hline \begin{tabular}{l} 3. "The comment is a "boilerplate" disclaimer of liability \\ that definitely does not affect the reliability of the \\ information we obtained." \end{tabular} & \begin{tabular}{l} Replace with "This comment (disclaimer) on the confirmation may \\ cast doubt about the completeness and accuracy of the \\ information contained in the response and, accordingly, we should \\ obtain further audit evidence." \end{tabular} \\ \hline \begin{tabular}{l} 4. "The deposit in transit seems properly handled on the \\ bank reconciliation (Exhibit 2) with a debit to cash." \end{tabular} & \begin{tabular}{l} Replace with "The deposit in transit is likely to be an interbank \\ transfer between the general account and the special \\ account." \end{tabular} \\ \hline 5. "This is because it was not written until 1/1/year 6." & \multirow{2}{*}{\begin{tabular}{l} Delete entire point 4. \\ Replace with "The deposit in transit is likely to be an interbank \\ transfer between the general account and the special account." \\ Replace with "The deposit in transit should be included on the \\ bank transfer schedule." \end{tabular}} \\ \hline \begin{tabular}{l} 6. "...be deleted from the outstanding check list; no \\ adjusting journal entry seems necessary." \end{tabular} & \\ \hline 7. "No further audit response is necessary related to & \begin{tabular}{l} Replace with "The deposit in transit seems to have taken too \\ long to reach the bank; we should investigate this further." \end{tabular} \\ \hline \end{tabular} \begin{tabular}{|c|c|} \hline Callouts & Determination \\ \hline 1. "...although pass adjustment due to immateriality." & Retain the original text. \\ \hline 2. "No adjusting entry is needed as of 12/31/ year 5." & \begin{tabular}{l} Replace with "We should propose an adjusting entry as of \\ 12/31/ year 5 debiting cash and crediting accounts receivable for \\ $6,000." \end{tabular} \\ \hline \begin{tabular}{l} 3. "The comment is a "boilerplate" disclaimer of liability \\ that definitely does not affect the reliability of the \\ information we obtained." \end{tabular} & \begin{tabular}{l} Replace with "This comment (disclaimer) on the confirmation may \\ cast doubt about the completeness and accuracy of the \\ information contained in the response and, accordingly, we should \\ obtain further audit evidence." \end{tabular} \\ \hline \begin{tabular}{l} 4. "The deposit in transit seems properly handled on the \\ bank reconciliation (Exhibit 2) with a debit to cash." \end{tabular} & \begin{tabular}{l} Replace with "The deposit in transit is likely to be an interbank \\ transfer between the general account and the special account." \end{tabular} \\ \hline 5. "This is because it was not written until 1/1/ year 6." & \begin{tabular}{l} Replace with "The transaction related to Cieck 2032 is elther a \\ deposit or a withdrawal; it can't be both." \end{tabular} \\ \hline \begin{tabular}{l} 6. "...be deleted from the outstanding check list; no \\ adjusting journal entry seems necessary." \end{tabular} & \begin{tabular}{l} Replace with "Check 2032 appears to result in the cash being \\ recorded in both accounts per books as of year-end and thus \\ overstates total cash by $3,000 at year-end." \end{tabular} \\ \hline \begin{tabular}{l} 7. "No further audit response is necessary related to \\ check 2027." \end{tabular} & \begin{tabular}{l} Replace with "Check 2032 is recorded in the general account \\ per bank in year 6 ; thus it understates total cash by $1,500 at \\ year-end." \end{tabular} \\ \hline \begin{tabular}{l} 8. "Check 2032 appears to result in the cash being \\ recorded in both accounts per books as of year-end and \\ thus overstates total cash by $1,500 at year-end." \end{tabular} & \begin{tabular}{l} Replace with "The transaction related to Check 2032 is either \\ a deposit or a withdrawal; it can't be both." \end{tabular} \\ \hline \end{tabular} Retain the original text. Delete entire point 8