1. 11A1.

   A summary of the controls for the revenue and cash receipts cycle of Keystone Computers & Networks, Inc., appears in this appendix.

   1. For the following three controls over sales, indicate one type of error or fraud that the control serves to prevent or detect. Organize your solution as follows:

Control	Error or Fraud Controlled
Application controls are applied when customer orders are entered by the sales order clerk. The computer assigns numbers to sales invoices when they are prepared. Monthly statements are mailed to customers.

• 2. For the following three controls over cash receipts, indicate one type of error or fraud that the control serves to prevent or detect. Organize your solution as follows:

Control	Error or Fraud Controlled
Cash receipts are prelisted by the receptionist. The accounting manager reconciles control totals generated by the accounts receivable computer program. The computer summaries of cash collections and cash sales are reconciled to prelistings of cash receipts and cash deposits by the accounting manager.

• 11A2.

  As indicated on the control risk assessment working paper Schedule IC-20 (its last section prior to the Assessed Level of Control Risk), the auditors identified two weaknesses in internal control over the revenue cycle of KCN. Describe the implications of each of the two weaknesses in terms of the type of errors or fraud that could result.

  1. Describe the characteristic that a control must possess in order to be tested with audit sampling.

  2. Assume that the auditors decided to use audit sampling to test the operating effectiveness of the procedures for matching sales invoices with delivery receipts. Determine the required sample size, using the following parameters.

     • Risk of assessing control risk too low5 percent

     • Tolerable deviation rate15 percent

     • Expected deviation rate1 percent

  3. Prepare a working paper similar to Schedule IC-15 documenting the planned audit procedure described in requirement (b).

• 11A3.

  As indicated on Schedule IC-15, the auditors decided to apply audit sampling to three controls for the revenue and cash receipts cycle. A) Describe the characteristic that a control must possess in order to be tested with audit sampling.

  11B2.

  Assume that you have been assigned to the audit of Keystone after audit planning has occurred. Review the planning information in Appendix 6C of Chapter 6 and the audit plan for the accounts receivable and revenue (Schedule B-6). The manager on the engagement has given you the task of reviewing the monthly revenue report on Schedule B-11.

• Based on your review of the report, describe any unusual relationships that might indicate a risk of misstatement of revenues based on your knowledge of the company derived from a review of the information on Schedule B-12.

• Identify any procedures on the audit plan for receivables and revenue that might address the risk(s) identified in part (a).

Quick Links Sites Lace Grade Scale Points (max 30.00) Instructions Topic Planning the Audit The Keystone Integrated Audit Case is designed to have you apply the concepts being studied in the course to realistic scenarios Assignment Instructions & Materials: Follow the steps instruction(s) below to complete Week 3 Audit Assignment. This assignment correlates with the information you have learned in Chapter 6 of the text. Read Appendix 6C starts on page 250) in your textbook and also download and review the xls document titled Week 3 Keystone Audit Case (This Excel file contains the three worksheet tabs Working Trial Balance, Financial Statements, and Ralios Simply click on the tab you wish to view) attached to this assignment. Working Trial Balance contains the KCN Working Trial Balance for the year ended December 31, 20x5 (unadjusted) and 2034 (adjusted/audited). Financial Statements contains comparative KCN Financial Statements which are the results of the adjusted working trial balance amounts for 20x4 and unadjusted 20x5. Ratios contains the Financial Statement Ratios calculated from KCN Financial Statements, both for 20x5 and for 20X4 After reading Appendix 6C and familiarizing yourself with the attached spreadsheet, create a document (.docx) and respond to the following prompt review question 6C-1 in the text for more details 66-1: Using the Planning information for the audit of Keystone Computers & Networks Inc. review each major section of the audit plan and briefly describe the purpose and content of the section. You will cover the audit plan sections of "Objectives of the Engagement through "Scheduling and Staffing Plan and summarize the purpose and content of each section of the audit plan For this problem you will organize your solution in the format shown in the text (a Section purpose and content format Now, re-read the "Business and industry Conditions", "Significant Risk", and "Significant Accounting and Auditing Matters" sections of the audit plan. Then, carefully review the working trial balance, financial statements and ratios in the Week 3 Keystone Audit Case Excel file. The planning documents already identify that the audit team must pay close attention to the three significant Accounting an Auditing Matters identified. In the same document you have created and responded to question 6C-1 in respond to the following questions Based upon your analysis what additional areas (balance sheet or income statement accounts) should receive extra scrutiny this year? Name two areas of concern and explain why you believe that these accounts should be subjected to extra audit procedures and/or additional inquiries of management. Formatting Requirements & Due Dates: Please type up and submit your work in Word format (.docx). Title your document in the following format firstinitiallastname.W3a (example: jdoe-w3a) Submit your report here in the Assignments tool.