Reference no: EM132468952

Samantha, CPA, has been assigned to audit the accounts receivable and inventory of Tasty Treats Inc., a large distributor of food products (canned goods, rice, frozen foods). Tasty Treats Inc. has a December 31 year end. Tasty Treats Inc. imports a variety of food products from various European countries to its central warehouse in Halifax and distributes the goods to various grocery chains across Canada. Tasty Treats customers consist of two large national grocery chain operators, as well as approximately 200 small independent grocers. The two large national grocers make up approximately 40% of Tasty Treats' accounts receivable balance. In order to facilitate distribution to central Canada, Tasty Treats Inc. also maintains inventory in several off-site warehouses. Samantha estimates that inventories and accounts receivable make up approximately 35% and 30% of total assets, respectively.

Required

Question 1: Provide two examples of the risks of material misstatement for the inventory and accounts receivable balances at Tasty Treats. Make use of the information in the scenario to provide examples that apply specifically to Tasty Treats.

Question 2: Samantha was provided with a detailed accounts receivable sub-ledger and an open invoice file at year end in two electronic computer files. The sub-ledger listed each customer, the customer's credit limit, the amount owing at year end, and an aging classification (0 to 30 days, greater than 30 days old, greater than 60 days old, and greater than 90 days old). The open invoice file listed all unpaid invoices by customer. For each invoice listed in the open invoice file, she was provided with the customer name, the invoice number, the date of the invoice, and the amount. Provide two examples of computer-assisted audit techniques that Samantha could perform on the accounts receivable sub-ledger file and open invoice file. Samantha has access to only these files.

Question 3: Meetings with the inventory manager reveal that a material amount of inventory is located off-site in warehouse outlets and on consignment. List two procedures that Samantha should conduct.

Question 4: The controller has provided the following description of the Westcon Manufacturing Company's payroll system:

• Each worker is provided with a unique swipe card, and each day upon arrival and departure, the employee swipes the card in a card reader where the system records the employee number as well as arrival and departure times. Each Monday morning, the data collected by the card reader are printed by a payroll clerk and entered into the computerized payroll system.

• The payroll system is run every two weeks and updates the payroll records and prints out the employee paycheques. The cheques are automatically imprinted with the signatures of the president and vice-president, finance, at the time of printing.

• The data processing department sends the cheques to the plant supervisors on Friday morning; they distribute them to the workers who are working that day or hold them for absent workers to pick up later.

• The plant supervisors do the hiring and handle terminations. The data processing department is informed by the plant supervisors when a new employee has been hired or an employee leaves the company. Any changes in hourly pay are communicated directly to data processing by the plant supervisors.

• The workers complete the job ticket for each individual production order that they work on each day. These job tickets are collected each day and sent to cost accounting, where they are used to prepare cost distribution analysis.

Required

Question 5: Identify four weaknesses in control procedures based on the controller's description of the company's payroll system. For each payroll system procedure listed, state the risk that it creates for the company and recommend an improvement in the controls to address the identified risk. Use three columns headed "Control weakness," "Risk," and "Recommendation."

Question 6: Assess control risk for the payroll cycle at the company. (one sentence is an appropriate length for your answer) (1 mark)

• Provide three examples of procedures that the auditor would likely perform in response to the control risk assessment for the payroll cycle. Be sure to provide procedures that address the control issues you identified