Chat 5 Solutions (CH5)

Chat 5 Solutions (CH5) - Chapter 05 - Audit Evidence and...

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Chapter 05 - Audit Evidence and Documentation 5-51 SOLUTION: Hope Ranch (a) Examination of the computer printout for this large account would be merely a preliminary step in the gathering of evidence by the auditors. The reliability of this printout would depend a great deal upon the adequacy of internal controls; specifically upon such points as whether the person maintaining this subsidiary ledger for accounts receivable had access to cash receipts, whether he or she was also responsible for maintaining the general ledger, and whether he or she played a part in the preparation of monthly statements sent to customers. (b) Copies of the sales invoices in the amount of the receivable would be dependable only if the internal control was strong, so that the person maintaining the accounts receivable records had no opportunity to obtain or falsify invoices, and the invoices were carefully controlled by serial numbers. Even under these favorable circumstances, not much weight could be attached to copies of sales invoices considered by themselves. (c) A purchase order received from a customer constitutes somewhat stronger documentary evidence than invoices created within the client organization, but could nevertheless be fraudulently created without too much difficulty. The purchase order would be of more significance if the auditors knew the customer company and the
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Chat 5 Solutions (CH5) - Chapter 05 - Audit Evidence and...

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