Specific deficiencies of the audit schedule presented

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Unformatted text preview: es no verification. Recompute portions of notes that are long-term. 4. Paid-to-date row is confusing. Column should say "date paid to" and this should be confirmed. 5. Due dates are missing for J.J. Co., P. Smith, and Tent Co. Include due dates on the audit schedule for these notes. 7-22 7-38 (continued) c. Spreadsheet Solution The purpose of using an Excel spreadsheet in this problem is to give the student some experience in preparing a simple audit schedule using an Excel spreadsheet. It should be explained to students that this type of audit schedule may or may not be prepared in actual practice, and that often templates are used to prepare more time-consuming audit schedules. Also, whether or not tick marks are computerized is a matter to be decided. The advantage is that the completed audit work can then be stored and reviewed electronically. On the other hand, it may be more efficient to indicate audit work manually as it is performed, and a contrast in the color of the tick marks through use of a colored pencil may be desirable. The following solution was prepared with Excel (Filename P738.xls). The formulas used are self-evident, so no listing is provided, although it is available on the Companion Website. Two items deserve comment: 1. 2. An advantage of using a spreadsheet program for these types of analyses is that footing and crossfooting are done automatically. When auditor tick marks are done by computer, a problem arises as to how to place them on the worksheet. One could use narrow columns inserted between the scheduled client data, or, as done here, the tick marks are placed in blank rows beneath the related data. 7-23 7-38 (continued) VANDERVOORT COMPANY A/C #110 - NOTES RECEIVABLE 12/31/09 Schedule Prepared by Approved by Account #110 - Notes Receivable Maker Apex Co. Ajax, Inc. J.J. Co. P. Smith 7-19 Martin-Peterson Tent Co. Date Made/ Due c * 6/15/08 / 06/15/10 c * 11/21/08 / Demand c * 11/1/08 / 04/01/14 ($200/Mo.) c * 7/26/09 / 08/01/11 ($1000/Mo.) c * 5/12/08 / Demand c * 9/3/09 / 02/01/12 ($400/Mo.) Interest Rate/Date Paid to Face Amount Value of Security 5000 None 3591 None 13180 24000 5% / 09/30/09 25000 5% / 12/31/09 6% / 11/30/09 5% / None pd. 5% / 12/31/09 5% / 12/31/09 Balance 12/31/08 Additions Payments Date 01/21/10 02/15/10 Interest Balance 12/31/09 Receivable 12/31/08 3000 104 Tp 0 Tp 24 Tp Earned Receiv ed 175 0 < 102 102 < r 577 601 < r Receivable 12/31/09 4000 Tp 3591 Tp 12780 Tp 0 50000 0 25000 r 5000 r 20000 0 468 < 200 r 268 2100 None 0 12000 r 10400 0 Tp 0 105 < 162 < 105 r 108 r 0 10000 2100 r 1600 r 0 12000 2100 Tp 0 22471 37000 15691 43780 128 1589 1116 601 f Tp f f f, cf wtb f Tp f op f f, cf wtb 0 0 1000 r 3591 r 2400 r N-1 JD PP 0 10380 Legend of Auditor's Tick Marks f cf Tp wtb op * c r < Footed Crossfooted Traced to prior year audit files Traced total to working trial balance Traced total to operations audit schedule - OP6 Examined note for payee, made and due dates, interest rate, face amount, and value of security. No exceptions noted. Received confirmation, including date interest paid to, interest rate, interest paid during 2009, note balance, and security. No exceptions noted. Traced to cash receipts records Recomputed for the year 279 0 0 54 Cases 7-39 The following are deficiencies in the sufficiency and appropriateness of the evidence in the audit of accounts payable for Nefret Stores: Kashir Advertising Credits – An insufficient number of confirmations (8) were sent. The use of alternative procedures is probably acceptable. However, one credit was confirmed by telephone, rather than by written confirmation. Although the differences found were immaterial, the auditors should have determined the reason for the differences, and any errors should have been projected to the population. Also, only 6 confirmations were received back and the other 2 were not followed up on. Thirty additional credits were selected for testing. Whether this is a sufficient number is a matter of judgment, and depends on several factors. With a fairly small sample, it is critical that the items selected for testing adequately represent the population. The testing relied on internal documentation, which is insufficient to support the credits. The placing of the ad is insufficient evidence without supporting evidence from the vendor supporting the reduction in accounts payable. Nashwa Credits – These credits were confirmed by telephone, and were not supported by a written confirmation. The staff auditor was suspicious of the client’s unwillingness to allow written confirmation of the amounts, as well as the client’s changing explanation of the nature of the credits, but did not perform additional testing to resolve any doubts about the validity of the credits. Zaki Credits – The auditor obtained an oral confirmation that these credits were not valid. The client indicated that the auditor's information was incorrect, but would not allow the auditor to obtain written confirmation for these credits. In addition, the credit memos...
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