auditing
Unit 5 GEL Assignment – The Scientific Method
Refer to Chapter 11 of the textbook, Objective Question 11-38.
Assume that fraud has been discovered in the “Possible Errors and Fraud” list, shown as A through O in the problem. Select two of the fraud items from the list and note them here:
Fraud Item #1
Invoices for goods sold are posted to incorrect customer accounts.
Fraud Item #2
Invoices are sent for shipped goods and are recorded in the sales journal, but are not posted to any customer account.
Following the scientific method, answer the following questions below:
a. Do background research in relationship to the issue to get a more in-depth understanding of the situation.
What questions would you ask of management to determine how the fraud is occurring based on the specific fraud identified?
Fraud Item #1
Are the employees in charge of shipping comparing the product shipped with the sales invoice to determine that the goods are being shipped to the customer who ordered them?
Fraud Item #2
Why are the invoices for shipped goods not being posted to any of the customers’ accounts?
b. Construct your hypotheses concerning the issue which we will use to test our data against.
Your hypotheses will be the implications on the financial statements because of the fraud items you identified. (Which accounts are affected? Will they be overstated or understated?)
Fraud Item #1
If invoices are checked once a month, then goods would not be sent to wrong customers.
Fraud Item #2
If controlled amounts posted to the accounts receivable ledger are compared with control totals of invoices, then invoices would be posted to the customer’s account.
c. Test your Hypotheses by doing experiments.
To test your hypotheses, you’ll need to list controls that would have to fail for the fraud to be committed. Then for testing, list what specific audit procedures you would perform to discover if the controls have in fact failed. You can use the
Refer to Chapter 11 of the textbook, Objective Question 11-38.
Assume that fraud has been discovered in the “Possible Errors and Fraud” list, shown as A through O in the problem. Select two of the fraud items from the list and note them here:
Fraud Item #1
Invoices for goods sold are posted to incorrect customer accounts.
Fraud Item #2
Invoices are sent for shipped goods and are recorded in the sales journal, but are not posted to any customer account.
Following the scientific method, answer the following questions below:
a. Do background research in relationship to the issue to get a more in-depth understanding of the situation.
What questions would you ask of management to determine how the fraud is occurring based on the specific fraud identified?
Fraud Item #1
Are the employees in charge of shipping comparing the product shipped with the sales invoice to determine that the goods are being shipped to the customer who ordered them?
Fraud Item #2
Why are the invoices for shipped goods not being posted to any of the customers’ accounts?
b. Construct your hypotheses concerning the issue which we will use to test our data against.
Your hypotheses will be the implications on the financial statements because of the fraud items you identified. (Which accounts are affected? Will they be overstated or understated?)
Fraud Item #1
If invoices are checked once a month, then goods would not be sent to wrong customers.
Fraud Item #2
If controlled amounts posted to the accounts receivable ledger are compared with control totals of invoices, then invoices would be posted to the customer’s account.
c. Test your Hypotheses by doing experiments.
To test your hypotheses, you’ll need to list controls that would have to fail for the fraud to be committed. Then for testing, list what specific audit procedures you would perform to discover if the controls have in fact failed. You can use the