1.An auditor discovered the following matters while performing tests of controls.

1. An invoice for goods received from PJ Supply Company for P400 was paid, but the client had never ordered the goods.

2. A vendor's invoice was not paid within the discount period because the receiving report was lost.

3. A vendor's invoice for hollow steel casing windows was paid. The goods were received, but vinyl insulated windows had been ordered.

4. A vendor was overpaid because the invoice was incorrectly footed.

5. A purchase of raw materials was recorded as a purchase of supplies.

6. An obligation for insurance was not paid because the voucher that was prepared was never recorded.

REQUIRED:

a. What control would have prevented or detected each of the misstatements?

b. What test should the auditor perform to test the control?

c. To which financial statement assertion does the misstatement relate?

2.The following are errors or irregularities that have occurred in Fresh Foods Grocery Store, a retail and wholesale grocery company.

1. The incorrect price was used on sales invoices for billing shipments to customers because the wrong price was entered into the computer file.

2. A vendor's invoice was paid twice for the same shipment. The second payment arose because the vendor sent a duplicate copy of the original two weeks after the payment was due.

3. Employees in the receiving department took sides of beef for their personal use. When a shipment of meat was received, the receiving department filled out a receiving report and forwarded it to the accounting department for the amount of goods actually received. At that time, two sides of beef were put in an employee's pickup truck rather than in the storage freezer.

4. During the physical count of inventory of the retail grocery, one counter wrote down the wrong descriptions of several products and miscounted the quantity.

5. A salesperson sold an entire carload of lamb at a price below cost because she did not know the cost of lamb had increased in the past week.

6. On the last day of the year, a truckload of beef was set aside for shipment but was not shipped. Because it was still on hand the inventory was counted. The shipping document was dated the last day of the year so it was also included as a current-year sale.

REQUIRED:

a. For each error or irregularity, identify one or more types of controls that were absent.

b. For each or irregularity, identify the internal control objectives that have not been met.

c. For each error or irregularity, suggest a control procedure to correct the deficiency.

3.The following control procedures over purchases and cash disbursements transactions are prescribed by the Love Company:

1. Approved purchase order for each purchase.

2. Prenumbered receiving report for goods received.

3. Signed receipt from storeroom on acceptance of goods.

4. Matching of voucher with vendor's invoice.

5. Approved voucher for each check.

6. Cancellation of voucher on payment.

7. Review of voucher and supporting documentation by check signers.

8. Internal verification of voucher accuracy.

9. Locked storerooms for inventory.

10. Periodic reconciliation of inventory control and perpetual inventory records.

11. Accounting for all prenumbered checks in journalizing.

12. Periodic independent bank reconciliations.

13. No checks payable to cash or bearer.

14. Approved purchase requisition for each purchase order.

15. Review of purchase requisition for reasonableness.

REQUIRED:

a. Indicate the function served by each procedure.

b. Identify an error or irregularity that may be prevented or detected by the control procedure.

c. Indicate a compliance test that may be performed to determine whether the control procedure above is operating as prescribed.