1.Fundamentally,thefraudof lapping is a failure of the system ofinternal controls. As specifically as you can,discuss the control system failure.In your answer,you should first briefly describe the fraud,and then identify the elements of the system of controls that permit the fraud to occur.

2.Which part ofthepurchases/payables/disbursementscycle is the most likely place for fraud?Describe a fraud that can occur. Assumingthere was no collusion, whatcontrols would prevent that fraud?

3.Work in process inventory can be particularly challenging tovalue.With regard to your management accounting knowledge,identify the main cost elements of work in processinventory (think of a car, airplane, or perhaps even a house under construction). For each cost element, design a preventive control that will reduce valuation errors.

4.Payroll is typically where most purposeful or inadvertenterrors occur in a company. Authorization is a critical control and occurs at several stages of the payroll cycle. Discuss where in the cycle the authorization duty is used.In your discussion,be precise as to what types of errors are being prevented.

5.For cash,the key control is the bank reconciliation.As a new Chief Financial Officer,I would always do the bank reconciliation myself for the first few months before returning it to the Controller to complete as part of their normal duties.What might have been some of the more detailed work I would have done apart from the mathematical exercise of agreeing the bank and the ledger amounts? Why did I do the work myself for a few monthsrather than just approve the reconciliation done bythe Controller?

6.Why is the legal letter such an important piece of audit evidence?

7.The client representation letter obtained at the end of the audit mirrors some of the engagement letter obtained at the beginning of the audit (e.g.page 172-173Arens, 14th ed). Discuss how these documents resemble each other and why it is important to have both in the audit files.