ACCT 444 Week 4 Homework

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3. Control activities 4. Information and communication 5. Monitoring 10-41 (Objective 10-7) The following are independent situations for which you will recommend an appropriate audit report on internal control over financial reporting as required by PCAOB auditing standards: 1. The auditor identified a material misstatement in the financial statements that was not detected by management of the company. 2. The auditor was unable to obtain any evidence about the operating effectiveness of internal control over financial reporting. 3. The auditor determined that a deficiency in internal control exists that will not prevent or detect a material misstatement in the financial statements. 4. During interim testing, the auditor identified and communicated to management a significant control deficiency. Management immediately corrected the deficiency and the auditor was able to sufficiently test the newly-instituted internal control before the end of the fiscal period. 5. As a result of performing tests of controls, the auditor identified a significant deficiency in internal control over financial reporting; however, the auditor does not believe that it represents a material weakness in internal control. Required For each situation, state the appropriate audit report from the following alternatives: Unqualified opinion on internal control over financial reporting Qualified or disclaimer of opinion on internal control over financial reporting Adverse opinion on internal control over financial reporting Chapter 12 12-19 (Objectives 12-2, 12-3) The following are misstatements that can occur in the sales and collection cycle: 1. A customer number on a sales invoice was transposed and, as a result, charged to the wrong customer. By the time the error was found, the original customer was no longer in business. 2. A former computer operator, who is now a programmer, entered information for a fictitious sales return and ran it through the computer system at night. When the money came in, he took it and deposited it in his own account.
3. A nonexistent part number was included in the description of goods on a shipping document. Therefore, no charge was made for those goods. 4. A customer order was filled and shipped to a former customer that had already filed for bankruptcy. 5. The sales manager approved the price of goods ordered by a customer, but he wrote down the wrong price. 6. A computer operator picked up a computer-based data file for sales of the wrong week and processed them through the system a second time. 7. For a sale, a data entry operator erroneously failed to enter the information for the salesman’s department. As a result, the salesman received no commission for that sale. 8. Several remittance advices were batched together for inputting. The cash receipts clerk stopped for coffee, set them on a box, and failed to deliver them to the data input personnel. Required 1. Identify the transaction-related audit objective(s) to which the misstatement pertains. 2. Identify one automated control that would have likely prevented each misstatement. 12-26 (Objective 12-4) Following are 10 key internal controls in the payroll cycle for Gilman Stores, Inc. Key Controls 1. To input hours worked, payroll accounting personnel input the employee’s Social Security number. The system does not allow input of hours worked for invalid employee numbers. 2. The payroll application is programmed so that only human resource personnel are able to add employee names to the employee master files. 3. Input menus distinguish executive payroll, administrative payroll, and factory payroll. 4. The system automatically computes pay at time and a half once hours worked exceed 80 in a 2- week pay period. 5. The system accumulates totals each pay period of employee checks processed and debits the payroll expense general ledger account for the total amount. 6. Each pay period, payroll accounting clerks count the number of time cards submitted by department heads for processing and compare that total with the number of checks printed by the system to ensure that each time card has a check.
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ACCT 444 Week 4 Homework

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