Chapter 7 - Chapter 07 - Auditing Internal Control over...

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Chapter 07 - Auditing Internal Control over Financial Reporting 7-1 CHAPTER 7 AUDITING INTERNAL CONTROL OVER FINANCIAL REPORTING Answers to Multiple-Choice Questions 7-19 d 7-27 c 7-20 b 7-28 a 7-21 c 7-29 c 7-22 c 7-30 a 7-23 c 7-31 c 7-24 a 7-32 a 7-25 d 7-33 d 7-26 d Solutions to Problems 7-34 Control 1: Monthly Manual Reconciliation Nature, Timing, and Extent of Procedures. Objective of the Test : To determine whether misstatements in accounts receivable (existence, valuation, and completeness) would be detected on a timely basis. Test the company's reconciliation control by selecting a sample of reconciliations based upon the number of accounts, the dollar value of the accounts, and the volume of transactions affecting the account. Perform the following tests on the reconciliation process: a. Make inquiries of personnel performing the control. Ask the employee performing the reconciliation the following questions: What documentation describes the account reconciliation process? How long have you been performing the reconciliation work? What is the reconciliation process for resolving reconciling items? How often are the reconciliations formally reviewed and signed off? If significant issues or reconciliation problems are noticed, to whose attention do you bring them? On average, how many reconciling items are there? How are old reconciling items treated? If need be, how is the system corrected for reconciling items? What is the general nature of these reconciling items? Who performs this function when you are ill or on vacation? b. Observe the employee performing the control. For nonrecurring reconciling items,
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Chapter 07 - Auditing Internal Control over Financial Reporting 7-2 observe whether each item included a clear explanation as to its nature, the action that had been taken to resolve it, and whether it had been resolved on a timely basis. c. Reperform the control for two months by inspecting the reconciliations and reperforming the reconciliation procedures. Scan through the file of all reconciliations prepared during the year and note whether they had been performed on a timely basis. d. Make inquiries of company personnel and determine that the reconciliation procedures have not changed from interim to year-end. Control 2: Daily Manual Preventive Control Nature, Timing, and Extent of Procedures. Objective of the Test : To determine whether misstatements in cash (existence) and accounts payable (existence, valuation, and completeness) would be prevented on a timely basis. Test the control over making a cash disbursement only after matching the invoice with the receiver and purchase. Select 25 disbursements (voucher packages) from the cash disbursement registers from January through September. Perform the following procedures: a. Examine the invoice to see if it includes the signature or initials of the accounts payable clerk, evidencing the clerk's performance of the matching control. b.
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This note was uploaded on 10/16/2011 for the course AIM 6334 taught by Professor Chrits during the Spring '11 term at University of Texas.

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Chapter 7 - Chapter 07 - Auditing Internal Control over...

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