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Internal Controls and Substantive Testing
You are the auditor of PC Ltd., a company that produces low cost electronic goods to children and young adults. The audit has a year end of 30th June 2012.
There are four main people involved with the acquisitions of inventory for PC Ltd. Ms Auburn is the purchases officer; Mr Brown is the Accounts Payable Clerk; Mr Crimson is the Financial Controller and Ms Dark is the Payments Officer.
The acquisitions system works as follows:
Required:
a) Identify three controls that operate within this system and state the potential errors they are aimed at preventing.
b) Describe two additional controls (or improvements to controls) that you would implement into this system and why.
c) Describe the substantive tests that you would perform on transactions in the acquisitions cycle of this system to gain adequate assurance over the assertions of completeness, cut off and accuracy.
Prepare journal entries to record these selected transactions for Vitalo Company.
You will be required to obtain/study annual reports of companies in the industry
Why is it important to place emphasis on the existence and rights (ownership) assertions when auditing accounts receivable?Which audit procedures are usually the most useful for auditing the existence and rights assertions?
Which of the following describes the internal control component "control procedures"?
Lenter Supply Corp. is a medium-sized distributor of wholesale hardware supplied in southern Manitoba. It has been a client of yours for several years and has instituted excellent internal control for sales at your recommendation.
What cutoff tests are performed for accounts receivable, how are they performed, and to what account audit objectives does the evidence pertain?
List and show the steps AOW should follow with regard to dealing with a predecessor auditor and a new client before accepting the engagement.
Accounts receivable are $45,000 and are directly proportional to total sales. The sales forecast for next year is $125,000, which represents a 5% growth over the current year. The forecast accounts receivable would be:
When assessing the tolerable deviation rate, the auditor should consider that, while deviations from control procedures increase the risk of material misstatements, such deviations do not necessarily result in misstatements.
Find the accrued interest earned and find the discounting of note receivable.
What are the qualitative benchmarks an auditor can use to assess materiality? How can an auditor use both qualitative and quantitative measures to make a better assessment of materiality?
As part of the audit of Manor Company, you are assigned to review and test the payroll transactions of the Galena plant.
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