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1. Agreed all disbursements to cash disbursements journal aud bank statement (date, check no., amount, payce). No exceptions noted. 2. Agreed all cash receipts to

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1. Agreed all disbursements to cash disbursements journal aud bank statement (date, check no., amount, payce). No exceptions noted. 2. Agreed all cash receipts to cash receipts joumal and bank statement (date, check no, amount, payee). No exceptions noted. This simulation presents the Keystone Computers \& Networks, Incorporated (Keystone) Cash Work Memo for the general account and petty cash prepared by two members of your audit team-your responsibility is to evaluate various statements included in that document, considering the varlous exhibits, Background financial and other information on Keystone is included in Appendix 6C of Chapter 6. The controller of Keystone Computers \& Networks Incorporated (Keystone), a nontssuer, prepared six exhibits relating to Keystone's General Account cash position at year 5 year-end. A new oudit assistant with your CPA firm has begun the oudit of cash but has a number of questions and comments bosed on a quick examination of the exhibits, now included in the working papers, and a discussion of some matters with the controller of Keystone. Required: Your job as senlor on the engagement is to review the various points made by the assistant, including consideration of the exchibits. For each of the sentences called out in the points on the document, determine if the current language is appropriate as is, should be removed altogether, or replaced with any of the provided alternatives. Links to each of the exhibits are provided in the document, but are avallable in the list below for convenience. Exhibit 1 -At year-end, $41 of cash and a receipt for $9.00 for postage. Staff Associate. Exhibit 2 7. "No further audit response is necessary related to check 2027 ." Retain the original text. Delete entire point 7. Replace with "We should perform further procedures to determine why the account reconciliation excludes this item, which should be listed as a deposit in transit as of year-end." Replace with "We should perform further procedures to determine why the account reconciliation excludes this item, which should be listed as an outstanding check as of yearend." Replace with "We should propose an adjusting entry recording the disbursement in December." 8. "Check 2032 appears to result in the cash being recorded in both accounts per books as of year-end and thus overstates total cash by $1,500 at year-end " Retain the original text. Delete entire point 8. Replace with "The transaction related to Check 2032 is either a deposit or a withdrawal; it can't be both." Replace with "Check 2032 appears to result in the cash being recorded in both accounts per books as of year-end and thus overstates total cash by $3,000 at year-end." Replace with "Check 2032 is recorded in the general account per bank in year 6 ; thus it understates total cash by $1,500 at yearend." Note: Check No, 2034 not listed because it was issued on 1/1 year 6 . Staff prepared the following schedule of transfers from the General Account to the Special Account. 5. "This is because it was not written until 1/1/year 6 " Retain the original text. Delete entire point 5. Replace with "This is because it was written in year 4." Replace with "But since the bank transfer schedule shows that it was received on 12/31/ year 5 in the special account, we should investigate this transaction further." Replace with "This represents a proper deposit in transit for the special account as of 12/31/ year 5 ." 6." be deleted from the outstanding check list, no adjusting joumal entry seems necessary. Retain the original text. Delete entire point 6. Replace with "be deleted from the check list, with a possible adjusting journal entry proposed debiting cash and crediting a miscellaneous revenue type account." Replace with "be deleted from the check list, with a debit to bad debt expense and a credit to cash." Replace with "remain on the list of outstanding checks until cashed to keep the account in balance." Replace with "is required to be reissued to a satisfactory charity for disbursement." Retain the original text. Delete entire point 3. Replace with "Because the bank representative added a disclaimer to the confirmation, we must discard this confirmation and use other auditing procedures to establish the balances." Replace with "Because the bank representative added a disclaimer to the confirmation, we are required by the professional standards to consider this a fraud risk factor and to consider the need for additional fraud-related procedures." Replace with "Therefore, we are required to reconfirm the account electronically in this circumstance." Replace with "This comment (disclaimer) on the confirmation may cast doubt about the completeness and accuracy of the information contained in the response and, accordingly, we should obtain further audit evidence." 4. "The deposit in transit seems properly handled on the bank reconciliation (Exhibit 2) with a debit to cash" Retain the original text. Delete entire point 4 Replace with "The deposit in transit is likely to be an interbank transfer between the general account and the special account." Replace with "The deposit in transit should be included on the bank transfer schedule." Replace with "The deposit in transit seems to have taken too Iong to reach the bank; we should investigate this further." I have a number of points related to the auditing procedures I applied to Keystone's cash accounts as follows: 1. Cash Lead Schedule (Exhibit 1) The company's petty cash (account 101) is stated at \$50. But the petty cash custodian acknowledges that there was only $41 in the account as of year-end because a $9.00 expenditure for supplies had been made This overstates cash by $9.00, although pass adjustment due to immateriality. (Callout /11 ) 2. Bank Reconciliation (Exhibit 2): The account receivable collected by the bank was paid by a client directly to the bank on December 29, year 5 . Keystone recorded the entry for the proper amount on January 2, year 6 . No adjusting entry is needed as o 12/31/year 5. (Callout //2 ) 3. Standard Bank Confirmation (Exhibit 3) The bank representative added a comment to the confirmation. The comment is a "boilerplate" disclaimer of liability that definitely does not affect the reliability of the information we obtained. (Callout $3 ) 4. Deposit in Transit (Exhibit 4) The deposit in transit seems properly handled on the bank reconciliation (Exhibit 2 ) with a debit to cash (Callout /4 ) 5. Outstanding Checks (Exhibit 5) and Bank Transfer Schedule (Exhibit 6). Check 2034 from the bank transfer schedule was omitted from the list of outstanding checks. This is because it was not written unti 1/1/year 6 . (Callout /45) 6. Outstanding Checks (Exhibit 5) The long-outstanding check for $200 will probably never be cashed as the company has atterripted to communicate with the payee and falled. Because the state does not require submission of such funds, we should suggest to the client that the $200 check be deleted from the outstanding check list, no adjusting journal entry seems necessary. (Callout /6) 7. Outstanding Checks (Exhibit 5) Keystone's first bank statement in yeor 6 included check 2027 dated on 12/30 for $1,500 to Jenco Corp, I found the check to be properly recorded in the cosh disbursements journal as of 12/30/yeor5. No further oudit response is necessary related to check 2027 . (Callout / 7 ) 8 Bank Tronsfer Schedute (Exhibit 5 ) Check 2032 appears to result in the cash being recorded in both accounts per books as of year-end and thus overstotes total cash by $1,500 ot year-end (Callout /NB ) Retain the original text. Delete entire point 2. Replace with "We should propose an adjusting entry as of 12/31/ year 5 debiting cash and crediting accounts receivable for $6,000." Replace with "We should propose an adjusting entry as of 12/31/ year 5 debiting cash and crediting miscellaneous revenues as net income is understated as of 12/31/year 5." Replace with "We should increase our assessed level of fraud risk due to this situation and propose no adjusting entry as of 12/31/ year 5

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