1039. Adapted AICPA Simulation Items a through l represent possible errors and fraud that you suspect may be present at Rex Company. The accompanying List of Auditing Procedures represents procedures that the auditor would consider performing to gather evidence concerning possible errors and fraud. For each item, select one or two procedures, as indicated, that the auditor most likely would perform to gather evidence in support of that item. The procedures on the list may be selected once, more than once, or not at all.

List of Auditing Procedures A. Compare the details of the cash receipts journal entries with the details of the corresponding daily deposit slips. B. Scan the debits to the fi xed asset accounts and vouch selected amounts to vendors invoices and managements authorization. C. Perform analytical procedures that compare documented authorized pay rates to the entitys budget and forecast. D. Obtain the cutoff bank statement and compare the cleared checks to the year-end bank reconciliation. E. Prepare a bank transfer schedule. F. Inspect the entitys deeds to its real estate. G. Make inquiries of the entitys attorney concerning the details of real estate transactions. H. Confi rm the terms of borrowing arrangements with the lender. I. Examine selected equipment repair orders and supporting documentation to determine the propriety of the charges. J. Send requests to confi rm the entitys accounts receivable on a surprise basis at an interim date. K. Send a second request for confi rmation of the receivable to the customer and make inquiries of a reputable credit agency concerning the customers creditworthiness. L. Examine the entitys shipping documents to verify that the merchandise that produced the receivable was actually sent to the customer. M. Inspect the entitys correspondence fi les for indications of customer disputes for evidence that certain shipments were on consignment. N. Perform edit checks of data on the payroll transaction tapes. O. Inspect payroll check endorsements for similar handwriting. P. Observe payroll check distribution on a surprise basis. Q. Vouch data in the payroll register to documented authorized pay rates in the human resources departments fi les. R. Reconcile the payroll checking account and determine if there were unusual time lags between the issuance and payment of payroll checks. S. Inspect the fi le of prenumbered vouchers for consecutive numbering and proper approval by an appropriate employee. T. Determine that the details of selected prenumbered vouchers match the related vendors invoices. U. Examine the supporting purchase orders and receiving reports for selected paid vouchers.

Possible Misstatements Due to Errors and Fraud a. The auditor suspects that a kiting scheme exists because an accounting department employee who can issue and record checks seems to be leading an unusually luxurious lifestyle. ( Select only 1 procedure. ) b. An auditor suspects that the controller wrote several checks and recorded the cash disbursements just before year-end but did not mail the checks until after the fi rst week of the subsequent year. ( Select only 1 procedure. )

c. The entity borrowed funds from a fi nancial institution. Although the transaction was properly recorded, the auditor suspects that the loan created a lien on the entitys real estate that is not disclosed in its fi nancial statements. ( Select only 1 procedure. ) d. The auditor discovered an unusually large receivable from one of the entitys new customers. The auditor suspects that the receivable may be fi ctitious because the auditor has never heard of the customer and because the auditors initial attempt to confi rm the receivable has been ignored by the customer. ( Select only 2 procedures. ) e. The auditor suspects that fi ctitious employees have been placed on the payroll by the entitys payroll supervisor, who has access to payroll records and to the paychecks. ( Select only 1 procedure. ) f. The auditor suspects that selected employees of the entity received unauthorized raises from the entitys payroll supervisor, who has access to payroll records. ( Select only 1 procedure. ) g. The entitys cash receipts of the fi rst few days of the subsequent year were properly deposited in its general operating account after the year-end. However, the auditor suspects that the entity recorded the cash receipts in its books during the last week of the year under audit. ( Select only 1 procedure. ) h. The auditor suspects that vouchers were prepared and processed by an accounting department employee for merchandise that was neither ordered nor received by the entity. ( Select only 1 procedure. ) i. The details of invoices for equipment repairs were not clearly identifi ed or explained to the accounting department employees. The auditor suspects that the bookkeeper incorrectly recorded the repairs as fi xed assets. ( Select only 1 procedure. ) j. The auditor suspects that a lapping scheme exists because an accounting department employee who has access to cash receipts also maintains the accounts receivable ledger and refuses to take any vacation or sick days. ( Select only 2 procedures. ) k. The auditor suspects that the entity is inappropriately increasing the cash reported on its balance sheet by drawing a check on one account and not recording it as an outstanding check on that account and simultaneously recording it as a deposit in a second account. ( Select only 1 procedure. ) l. The auditor suspects that the entitys controller has overstated sales and accounts receivable by recording fi ctitious sales to regular customers in the entitys books. ( Select only 2 procedures. )