The staff auditor was suspicious of the clients

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Unformatted text preview: had been altered, which should have further indicated to the auditor that the credits were not valid. Accounts Payable Accrual – The auditors sent 50 accounts payable confirmations. Whether this is a sufficient number of confirmations is a matter of auditor judgment. However, the adequacy of the confirmations as evidence is significantly undermined by the knowledge that the client told suppliers how to respond. As a result, the auditor should have verified the confirmed balances using alternative procedures. There is no discussion of the performance of alternative procedures for nonresponses, or the resolution of the six responses that were not reconciled to Grande’s records. There is no action on the $290,000 unrecorded liability found through extrapolating confirm testing. The auditors agreed to an adjustment of $260,000 when their cutoff tests indicated a potential liability of $500,000 for cutoff and $290,000 for confirms. It would be appropriate for the auditors to agree to a lower amount only if additional testing supported a lower accrued liability. 9-25 7-40 The audit schedule contains the following deficiencies: 1. There is no indication of follow-up on the identified error in the accrued interest payable computation. 2. There is no indication whether the confirmation exception was resolved. 3. The loan with an unwaived violation of a provision of the debt agreement is misclassified as long-term. 4. The liability activities of Lender's Capital Corp. and the audit schedule totals do not crossfoot. 5. There is no indication of cross-referencing of the stockholder loan to the related party transactions audit schedule. 6. There is no investigation of the payment on the stockholder loan that was reborrowed soon after year-end. 7. There is no consideration of the need to impute interest on the 0% stockholder loan. 8. There is no indication that the dates under "interest paid to" were audited. 9. There is no indication that the unusually high average interest rate ($281,333/$1,406,667 = 20%) was noted and investigated. 10. The audit schedule does not support the overall conclusions expressed. 11. The tick mark "R" is used but not explained in the tick mark legend. 12. There is no indication that the audit schedule was prepared by client personnel. 7-41 – ACL Problem Solution a. There are 44 payroll transactions in the Payroll file. (This is determined by reading the number at the bottom of the screen.) b. The largest and smallest gross pay amounts for September are $4,395.83 and $1,278.33, respectively. (Use Quick Sort.) c. Total gross pay for September was $99,585.46. ( Use the Total command.) d. The report on the following page shows gross pay by department. ( Use the Summarize command on the Gross Pay column, save to a file, and print.) Note that this screenshot was produced using the “Screen” option in the Output tab of the Summarize window. Students’ hardcopy printouts will appear slightly different, but will contain the same departmental totals. 9-26 7-41 – ACL Problem (continued) Report for requirement d: e. f. There are no exceptions in the calculation of net pay for September. (Use the following Filter: Gross Pay – Taxes < > Net Pay. ) There are no duplicate check numbers. ( Use the Duplicates command on the check [cheque] number column ). There are four missing checks (#12389 - #12392). The audit concern is that there may be unrecorded payroll transactions. ( Use the Gaps command on the check [cheque] number column.) Internet Problem Solution: Use of Audit Software for Fraud Detection and Data Quality Assurance 7-1 The use of audit software has increased dramatically in recent years. Software is now used to fulfill administrative functions in the audit environment, document audit work, and conduct data analysis. While some accounting firms use internally-developed software, other firms purchase software from vendors such as ACL and Audit Analytics. When technology is properly used auditors are 9-27 Internet Problem 7-1 (continued) able to focus their efforts on understanding their client and the related accounting and auditing issues. Visit ACL’s website [] to learn more about the various software tools available for use in the audit environment. 1. Read about ACL’s solution for data quality and fraud detection. How might an auditor use ACL’s data analytics software for these two purposes? Answer: Because companies generate very large amounts of data and use different information systems to generate that data, auditors must be able to overcome these potential constraints. ACL has the ability to handle huge volumes of data that are generated by various operating systems, database structures, and enterprise applications (e.g. ERP, CRM, SCM, and BI systems). After data are captured, ACL can be used to independently test, reconcile, and validate transactional data. If performed manually, these types of procedures can take extraordinary amounts of time. ACL can also be used for fraud detection purposes. ACL can identify trends, generate exception reports, and highlight po...
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This note was uploaded on 02/04/2014 for the course ACCOUNTING 211 taught by Professor Alikapur during the Fall '13 term at American University of Sharjah.

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