Question 10 10 pts Based on your response to Question 7, provide one example of evidence indicating a potential misstatement while testing an audit objective for your task of designing and executing auditing procedures over Starblocks' roasted bean inventory. Be sure to clearly state the audit objective associated with this potential misstatement.
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Akash M.
Smith, the senior audit associate in charge of the audit of Raymond's Mfg., observed the client's physical inventory count held on the last day of the company's fiscal year, August 31, Year 1. Smith identified some differences in the quantity of items between his count and the quantity recorded on the client's inventory listing. Complete the task below by using the information provided in the exhibits. For each variance identified, select from the option list provided the auditor's most likely response. A response may be used once, more than once, or not at all. Test Count Number Inventory Item Inventory Code Auditor Response 1 MDF Panel AB-6123 2 Pegboard Panel HJ-0990 3 Sanded Plywood CO-8013 4 Sheathing Plywood CO-8012 5 Strand Board WI-5491 6 Underlayment MO-6403 OPTION LIST (Auditor Response): - Inspect supporting documents and agree quantities received to the purchase order - Inspect supporting purchase documents for proper shipping terms and receiving information to verify exclusion from the inventory count - Inspect supporting purchase documents for proper shipping terms and receiving information to verify inclusion in the inventory count - Inspect supporting sale and shipment documentation for proper shipping terms for exclusion from the inventory count - Inspect supporting sale and shipment documentation for proper shipping terms for inclusion in the inventory count - Obtain the scrap inventory log and agree to the general ledger - Request that the client make the appropriate correction to record additional inventory - Request that the client make the appropriate correction to reduce inventory - Review return shipment documentation to verify exclusion from the inventory count - Review return shipment documentation to verify inclusion in the inventory count Item Name Item Code Inventory Quantity MDF Panel AB-6123 484 Sheathing Plywood CO-8012 786 Sanded Plywood CO-8013 203 Pegboard Panel HJ-0990 CO-8013: Payments made in advance for items received on September 2, Year 1 CO-8012: Inventory received on August 30, Year 1
The following audit procedures are included in the audit program because of heightened risks of material misstatements due to fraud. 1. Use audit software to search purchase transactions to identify any with nonstandard vendor numbers or with vendor names reflecting related parties. 2. Search sales databases for missing bill of lading numbers. 3. Use audit software to search for journal entries posted to the sales revenue account from a nonstandard source (other than the daily sales journal). 4. Use audit software to search cash disbursement master files for missing check numbers. 5. Search the accounts receivable master file for account balances with missing or unusual customer numbers (e.g., "99999"). 6. Use audit software to create a list of all credits to the repair and maintenance expense account for follow-up testing. 7. Engage an actuarial specialist to examine management's assumptions about average length of employment and average life expectancy of retirees used in pension accounting decisions. 8. Send confirmations to customers for large sales transactions made in the fourth quarter of the year to obtain customer responses about terms related to the transfer of title and ability to return merchandise. Required: For each audit procedure: 1. Describe the type of fraud risk that is likely associated with the need for this audit procedure. 2. Identify the related accounts likely affected by the potential fraud misstatement. 3. Identify the related audit objective(s) that this procedure addresses.
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Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
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