27 Dec Scenario: The firm of Abernet

ACC522 Advanced Audit Issues

Unit 5 Assignment

Part 1

Case 5: Test of Controls: The Revenue and Cash Receipts Cycle

Instructions: Answer all the questions that appear below (and also in Exhibit 5-1) regarding accounts receivable control procedures. Use this case and Exhibits 4-4 and 4-5 to complete this questionnaire.

Case 5 – Exercise 1

Abernethy and Chapman

Internal Control Questionnaire – Accounts Receivable

Client: The Lakeside Company

Prepared by:

Date:

Questions

Comments on Current System

Significance

Suggestions

1

Does an independent party on a regular basis reconcile the subsidiary ledger?

2

Are appropriate, established criteria in place for writing off doubtful accounts?

3

Are accounts to be written off properly reviewed and authorized by an independent party?

4

Is an appropriate follow up made on accounts that are written off?

5

Does the company periodically re-evaluate the method in use for estimating bad accounts?

6

Are customers billed regularly by a party separate from the subsidiary ledger?

7

Is an independent verification made of complaints from customers concerning their bills?

8

Was the company’s policy of granting credit changed over the past year?

9

Can a credit sale possibly be made without prior credit approval?

10

Are credit files complete and periodically reviewed?

11

Are invoices verified as to agreement with goods shipped and price of goods?

12

Are extensions and footing recalculated?

13

Are cash discounts recomputed and verified as to actual days?

14

Can a sale possibly be made and goods shipped without an invoice being recorded or mailed?

Part 2

Case 5: Test of Controls: The Revenue and Cash Receipts Cycle

Instructions: Exhibit 5-2 is a portion of the audit program that Mitchell designed to test the operating efficiency of controls in the revenue and cash receipts cycle. For each individual test that appears in Exhibit 5-2, indicate the anticipated results if the control procedure is working properly. Also, if the control is not functioning properly, what potential problems exist? Indicate your responses in the table provided below.

ACC522 Advanced Audit Issues

Unit 6 Assignment

This is a 2 -part assignment

Student Name: _____________________________________

Part 1

Read Case 7 – Designing Substantive Audit Tests: Compensation Plans

Instructions: Answer all the questions that appear below using the template provided:

Paul Reubens is a new staff auditor recently hired by the firm of Abernethy and Chapman. As one of his initial assignments, he is to perform several audit procedures in the Lakeside engagement. He has already completed a set of payroll tests and prepared the audit document presented in Exhibit 7-1. The firm of Abernethy and Chapman has a policy that the senior (in-charge) auditor on an engagement must review and approve all audit documentation. If errors or problems are found, the audit documents are returned to the staff auditor for appropriate revision. This review process helps to ensure that each audit document provides a clear and complete indication of the procedures that were performed and the evidence that was accumulated.

Analyze the audit document in Exhibit 7-1 as if you were the senior auditor. Prepare a list for Reubens of the errors and problems that are present in his audit document. For each, indicate the reason that the current presentation is not acceptable. Refer to Case 6 for standard audit document content and format.

Case 7 – Exercise 1

The Lakeside Company

Payroll Tests

In-charge Review Comments

December 31, 2012

Prepared by:

Date:

Item on Working Paper

Problem

Part 2

Read Case 8 – Observation of Physical Inventory Count

Instructions: Answer all the questions that appear below using the template (case 8 exercise 1)

provided below:

Mitchell knows that the following three audit objectives related to inventory need to be accomplished:

verify that the physical count she observed agrees with the inventory listing shown in Exhibit 8-4
verify that the inventory listing (Exhibit 8-4) provides a fairly presented inventory cost balance, and
verify that the reconciling items on Exhibit 8-5 are valid and reasonable.
She assigns these tasks to Paul Reubens, a new staff auditor recently hired by the firm of Abernethy and Chapman. Prepare a step-by-step audit program for Reubens so that he can achieve these three audit objectives.

ACC522 Advanced Audit Issues

Unit 7 Assignment

Case Study: Missing Receipts

Student Name: _____________________________________

Prepare a presentation that addresses the issues in the case below

Address your presentation to accounting students studying the cases as a lesson in ethics, and you are the instructor.

Be creative with your presentation!

Case Study – The Case of Missing Receipts

Amy and Jane are newly minted CPAs and are currently assigned as external auditors as part of the audit team from XYZ, LLP responsible for the financial audit of the school district of Hamptons located in the state of New York for FYE 2016. Amy and Jane are experiencing major difficulties tracing the original documentation for travel and documentation reimbursement claims made by the top business manager of the district. The manager is aware of the concerns of Amy and Jane and approached them about it. The following conversation took place:

Manager: I have spent an inordinate amount of time requesting for copies of these receipts from the hotel where I stayed. Unfortunately, the vendor informed me that my receipts are no longer available for them to reproduce a copy of.

Amy: How about your credit card statement that shows you paid for these amounts? Could you produce those?

Manager: I did not use a credit card. I paid for them in cash.

Jane: How about a copy of the reservations that you made? Nowadays, we often make reservations online. You may be able to retrieve this information from your email archive.

Manager: I delete all my emails after 3 months. I don’t have any of this.

Amy: Is there any other proof that you can provide to substantiate this reimbursement?

Manager: Girls, what can I tell you? I can’t produce what I don’t have and others are unwilling to provide me with. What do you want me to do?

Instructions: To fully address the questions below, use the following pointers as your guide:

1) Analyze the ethical question or dilemma

2) Consider the stakeholders that are likely to be affected by these actions.

3) Analyze Alternatives and/or consequences

4) Defend a viewpoint

5) Discuss core beliefs, its origins and relationship to the accounting profession

Questions:

1) Amy and Jane are CPAs and members of the AICPA. What ethical standards in the Code of Professional Conduct should guide them in dealing with the dilemma presented by the manager here?

2) Should Amy and Jane report these findings to their audit manager?

3) The manager is very friendly and personable. During the course of the audit, he has often purchased lunch for the audit team even if the team refused to do under the guise that this is a treat for everyone. Amy and Jane are afraid that reporting this situation may have a negative impact on the manager’s job. Should they be concerned about this?

4) What should the firm do regarding this information? What are the proper procedures that they should observe?

5) Besides the missing receipts, would the actions of the business manager here prompt you to consider performing additional tests? Why or why not?

ACC522 Advanced Audit Issues

Unit 8 Assignment

This is a 3 part assignment

Part 1

Case 11: Sampling for Variables – Difference Estimation

Answer the following questions below. Use your text and other available resources to provide

well-reasoned responses.

1) Carole Mitchell attempted to use judgmental sampling to verify the client’s accrual in this case while Dan Cline opted for statistical sampling. What are the advantages and disadvantages of each approach? Will a statistical sample usually be smaller than a non-statistical sample?

2) Exhibit 11-2 presents the results of Mitchell’s initial testing. Was Cline correct in seeking additional audit evidence? Include in your answer the concept of sufficiency of audit evidence.

3) Statistical sampling is occasionally criticized for preventing the auditor from introducing personal judgment into a particular test. Is this assertion valid? How much knowledge of statistical sampling should the auditor have? Is it typical to obtain assistance from a specialist in developing a sample?

4) Statistical sampling has also been criticized for being a slow, time-consuming process relative to judgmental sampling. Is this assertion valid?

5) An auditor may utilize sampling for attributes in some tests and sampling for variables in others. How is the decision made as to which of these methods should be applied? Is it appropriate to use a cost-based decision when considering the independent auditors’ responsibility?

Part 2

Case 12: Review of Subsequent Events

1) Prepare the auditor’s report that you believe is warranted for the Lakeside Company’s 2012 financial statements based on the information contained in the first 11 cases. Lakeside issues comparative financial statements. Assume that any facts not explicitly covered in these cases would not influence the decision as to the type of opinion to be rendered.

2) Separately, provide an explanation why you issued the report that you did.

Part 3

Case 13: Consulting and other Services

Apply your research. Use your text and other available resources to provide well-reasoned responses.

Scenario: The firm of Abernethy and Chapman was asked to do consulting work for Lakeside that is completely separate and unrelated to the audit of the financial statements. Write a report discussing the potential conflict of interest when an auditor does consulting work for an audit client. Does this relationship cause the independence of the auditor to be violated? Why or why not? Since the Enron debacle, how has the accounting profession dealt with this issue?

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