23-20 (Objectives 23-3, 23-4) The following are misstatements that might be found in the client’s year-end cash balance (assume that the balance sheet date is June 30):

• 1.The outstanding checks on the June 30 bank reconciliation were underfooted by $2,000.
• 2.A loan from the bank on June 26 was credited directly to the client’s bank account. The loan was not entered as of June 30.
• 3.A check was omitted from the outstanding check list on the June 30 bank reconciliation. It cleared the bank July 7.
• 4.A check was omitted from the outstanding check list on the bank reconciliation. It cleared the bank September 6.
• 5.Cash receipts collected on accounts receivable from July 1 to July 5 were included as June 29 and 30 cash receipts.
• 6.A bank transfer recorded in the accounting records on July 1 was included as a deposit in transit on June 30.
• 7.A check that was dated June 26 and disbursed in June was not recorded in the cash disbursements journal, but it was included as an outstanding check on June 30.

Required

• a.Assuming that each of these misstatements was intentional (fraud), state the most likely motivation of the person responsible.
• b.What control can be instituted for each fraud to reduce the likelihood of occurrence?
• c.List an audit procedure that can be used to discover each fraud.

 

 

 

14-26 (Objectives 14-3, 14-4, 14-5) The following are commonly performed tests of controls and substantive tests of transactions audit procedures in the sales and collection cycle:

• 1.Account for a sequence of shipping documents and examine each one to make sure that a duplicate sales invoice is attached.
• 2.Account for a sequence of sales invoices and examine each one to make sure that a duplicate copy of the shipping document is attached.
• 3.Compare the quantity and description of items on shipping documents with the related duplicate sales invoices.
• 4.Trace recorded sales in the sales journal to the related accounts receivable master file and compare the customer name, date, and amount for each one.
• 5.Examine sales returns for approval by an authorized official.
• 6.Review the prelisting of cash receipts to determine whether cash is prelisted daily.
• 7.Reconcile the recorded cash receipts on the prelisting with the cash receipts journal and the bank statement for a 1-month period.

Required

• a.Identify whether each audit procedure is a test of control or a substantive test of transactions.
• b.State which of the six transaction-related audit objectives each of the audit procedures fulfills.
• c.Identify the type of evidence used for each audit procedure, such as inspection and observation.