Preview

Questions

Good Essays
Open Document
Open Document
1438 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Questions
Chapter 10

10-3
When a client does not adequately segregate duties, the possibility of cash being stolen before it is recorded is increased. If the auditor suspects that this type of defalcation is possible, what type of audit procedures can he or she use to test this possibility?
The auditor can review who handles the receiving and preparing customer orders, approving of credit, preparing customer invoice, preparing accounts receivable aged trial balance and if the same person is doing all these duties then the auditor will be able to determine if cash is being stolen.

10-6
What are the two major controls for sales returns and allowances transactions?
First each credit memorandum should be approved by someone other than the individual who initiated it. Second, a credit for returned goods should be supported by a receiving document indicating that the goods have been returned.

10-7
List four analytical procedures that can be used to test revenue-related accounts. What potential misstatements are indicated by each of these analytical procedures?
1) Comparison of sales returns as a percentage of revenue to previous years’ or industry data. The potential misstatement is that it will be under-or overstatement of sales returns.
2) Estimation of sales commission expense by multiplying net revenue by average commission rate and comparison of recorded sales commission expense. The potential misstatement is that the under-or overstatement of sales commission expense and related accrual.
3) Comparison of gross profit percentage by product line with previous years and industry data. The possible misstatement detected would be unrecorded (understated) revenue.
4) Analysis of the ratio of sales in the last month or week to total sales for the quarter or year. The possible misstatement detected would be product-pricing problems.

10-25
Prepare the “Shipments” segment of Taylor’s internal control questionnaire.

Questions Yes

You May Also Find These Documents Helpful

  • Good Essays

    Apollo Shoes Case Study

    • 656 Words
    • 3 Pages

    For cash to be tested of the controls necessary to avoid fraud, it will have to look into the bank reconciliations of the cash accounts which can an affect many account of the balance sheet. The key cash accounts that maybe affect are the general cash account, imprest payroll account, and imprest petty cash fund. If fraud is an issue an audit may need to further test on the reconciliation procedures, proof of cash, and test of interbank transfers.…

    • 656 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    • Sales to Inventory Ratio provides a yardstick for comparing stock-to-sales ratios of a business with others in the same industry. A high ratio may indicate that sales are being lost because of low inventory and/or customers are buying elsewhere. A low ratio may indicate that inventories are obsolete or stagnant. Annual Net Sale ÷ Inventory…

    • 2428 Words
    • 10 Pages
    Powerful Essays
  • Good Essays

    Acc 491

    • 1256 Words
    • 6 Pages

    Required * Analytical procedures show that inventory turnover decreased from 31–34 days to 27 days, and gross margins declined to the lowest level in five years. What might this indicate about the risk of misstatement with respect to inventory and inventory purchases?…

    • 1256 Words
    • 6 Pages
    Good Essays
  • Satisfactory Essays

    This week, Learning Team B reflected on the prior week’s assignment. We all agreed that the most significant take-away from the week’s lesson was the total-revenue test. The total-revenue test is a way to determine if a product is elastic (a decrease in price that will increase the total revenue and vice-versa) or inelastic (a decrease in price that will cause the total revenue to decrease and vice-versa) (McConnell, 2009, p. 116, para. 6). Businesses use this test to determine if they have a product that is elastic or inelastic by moving the prices of the products up and down and determining if the revenue is increasing or decreasing. For example, if a product currently sells for $5, the seller increases the price to $10, and the revenue goes down, the seller can determine that his product is elastic. If they seller’s revenue actually increases alone with the price increase that tells the seller that his product is elastic and is at a more demand regardless of the price. Depending on what types of products the seller has to sell will determine if they are necessities and will be elastic or inelastic.…

    • 530 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Fraud Schemes Exercise

    • 258 Words
    • 1 Page

    List audit procedures that you could perform to address whether someone is stealing cash through fake refunds?…

    • 258 Words
    • 1 Page
    Satisfactory Essays
  • Good Essays

    Au Section 316

    • 681 Words
    • 3 Pages

    AU section 316 concentrates on the possibility of discovering fraud when auditing financial statements. The standard found in this Section details the responsibilities that auditors must fulfill in an audit pertaining to fraud. AU section 316 helps auditors understand the processes that need to be fulfilled as well as their responsibilities when performing an audit. In order to obtain reasonable assurance that the audit was conducted in compliance with AU Section 316, auditors must meet their obligation to ensure that the financial statements are free from material misstatements. Material misstatements could be caused by any errors or fraud but the auditors must gain enough evidence to give an opinion when performing an audit.…

    • 681 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    bus122

    • 1027 Words
    • 4 Pages

    4.Analyze the accounts impacted and / or accounting guidelines violated and the resulting impact to the business operation.…

    • 1027 Words
    • 4 Pages
    Satisfactory Essays
  • Powerful Essays

    Arbotech Case

    • 837 Words
    • 3 Pages

    C. Describe the effect of each of the eight accounting irregularities on the balance sheet, income statement, and statement of cash flows.…

    • 837 Words
    • 3 Pages
    Powerful Essays
  • Powerful Essays

    trueblood

    • 874 Words
    • 4 Pages

    • If the audit engagement team determines that the scope of the investigation is not sufficient to support the preliminary conclusions reached, what additional procedures or inquiries might the engagement team suggest?…

    • 874 Words
    • 4 Pages
    Powerful Essays
  • Powerful Essays

    Stock and Company

    • 6262 Words
    • 26 Pages

    9. In comparing the profitability of different companies that have quite different financial structures, the use of the EBIT to total funds employed ratio would be more suitable than the EBIT to shareholders’ funds ratio.…

    • 6262 Words
    • 26 Pages
    Powerful Essays
  • Satisfactory Essays

    Leman Brothers Analysis

    • 549 Words
    • 2 Pages

    3. If these important transactions are within the scope of auditing work, auditors have the responsibility to assess whether they are “accounting-motivated”, since it may bring potential risks and exposure to clients.…

    • 549 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    The traditional financial measures include some ratios like average return rate (ARR), return on investment (ROI), residual income (RI), and earnings per share (EPS). In the case, we can find LEGO’s financial measures in exhibit 1. From 2006 to 2010, LEGO’s profit and assets had a gradual increase, the margin, ROE, and ROI also increased year by year, which show that LEGO performed well during the period. However, these traditional measures results mainly based on historical figures, which is difficult to establish relationship between managers’ actions and the reported financial results. Moreover, these measures are open to manipulation, which may not reflect the real performance of LEGO. Additionally, due to lack of comparability across companies, it’s hard to identify the real performance of LEGO.…

    • 387 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    Questions Yeah

    • 1248 Words
    • 5 Pages

    In summary, the emergence of the BRICs signals that the next generation of economic development of the global economy will be a thrilling ride. Even if the BRICs come close to reaching their apparent potential, their success will redefine the structure of economic environments, patterns of growth, and dynamics of economic activity. …

    • 1248 Words
    • 5 Pages
    Satisfactory Essays
  • Good Essays

    Transmile

    • 498 Words
    • 2 Pages

    Top executives of Transmile Group Bhd may have been aware of the overstatement of the group's sales figures when the unaudited annual accounts for financial year ended Dec 31, 2006 (FY06) were released to Bursa Malaysia on Feb 15, sources say. Transmile's external auditor Messrs Deloitte & Touche is said to have alerted the management, namely chief executive officer Gan Boon Aun, chief financial officer Lo Chok Ping and the audit committee on the inaccuracy of the substantially high revenue of RM989.2mil for FY06. However, it is believed the matter was not taken to the board level. Chairman of the audit committee Chin Keem Feung is also an independent director.…

    • 498 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    Customer Profitability

    • 616 Words
    • 3 Pages

    Revenue difference- difference in price charged per unit to different customer, differences in the selling volume levels across the customer etc.…

    • 616 Words
    • 3 Pages
    Satisfactory Essays