All Documents provided please answer the questions provided in screen shots. The question whether to change or keep the statements in audit letter.

A staff member on your audit team has performed a portion of the audit plan for the audit of ABB, Inc., an issuer. The procedures involved include selecting a random sample of 50 purchase invoices from throughout the year and comparing them to related support. As senior on the engagement, you will now review various points made by the staff auditor. ABB records purchases when it has received the goods and been billed by the vendor (vendor's invoice). It uses a periodic inventory valuation method in which quantities of inventories and costs are updated at the end of each year. The materiality for the audit has, at this point, been set at $60,000. To revise the memo, click on each segment of underlined text below and select the needed correction, if any, from the list provided. If the underlined text is already correct in the context of the report, select [Original Text] from the list. If removal of the entire underlined text is the best revision to the report, select [Delete Text] from the list when that option is available. Conversation with Chief Purchasing Agent Memo O e t 1 of 1 - + Automatic Zoom Audit File Memo on Conversation with Chief Purchasing Agent January 2, year 5 I spoke with the chief purchasing agent about the two purchases in our sample from unapproved vendors. He said that those had been approved by one of his assistants (Alexander Lang), an assistant no longer with ABB. (I determined this was the case.) The one company, Mammath & Co., provided inventory items that were comparable to those provided by other suppliers. The agent was uncertain why the assistant had made the purchase from Mammath but said that he would consider purchasing from them in the future if their prices are competitive when (if) they are ultimately added to the approved vendor list. The other unapproved vendor was A.L. Associates. The chief purchasing agent suggested that he was uncertain about that one and hadn't been aware of it until I brought it up. He keyed in the information on the transaction and confirmed that the purchase and payable are still "open." I brought up the issue of whether any procedures have been followed this year to determine whether year-end purchases are reported in the proper period. He said that he and his staff always make sure that any inventory items received by year-end are included in inventory totals. Additional procedures seem necessary (as outlined in my document) related to the unapproved vendors and the year-end cutoff. Staff Auditor Email from Chief Purchasing Agent O O 1 of 1 - + >> TO: Associate Auditor From: Chief Purchasing Agent Date: January 3, year 5 I looked into the A.L. Associates purchase invoice. Nothing has happened on this in over three months. So, I emailed using the address we have for them a note saying that I canceled the purchase. Here's another thing Lang did before he left. He went into the accounting system and recorded an entry in the purchases journal for which there was no purchase invoice. We followed up on it and didn't find any shipment or anything related to the entry, which was for approximately $700 relating to a company called Al Sound. We never did find any real support relating to that entry so we reversed it out. Thanks for bringing this up. This is craziness caused by that Alexander Lang. I'm glad he's not around anymore. Approved Vendors List O O TRI 1 of 1 ABB Approved Vendors Blanmo Burleigh and Strong Chotchkies ColonialBros Corp. DACCA Data Systems dCom Edgingon General Products Globo Corp. Initring Corp. Klimpy Wing Co. Leeding Edge Eng LuthorCorp Milliways Inc. New Approach Inc. Petrox Supply Co. Reas and Bros. Roxxon Corp. Seven Waters Corp. Thrift Supplies Universal export Went Corporation Wernham Hose Inc. Zevo ZiffoCorp. Conversation with Controller Memo 0 0 1 of 1 - + Conversation with Controller January 4, year 5 I spoke with the controller about shipping terms for purchases. She stated that the company ordinarily simply went along with the preferred method suggested by suppliersmost frequently FOB shipping point. At this point no effort has been made to examine purchases around year-end to determine that they are recoded in the proper period because year-end is ordinarily a slow time and she doubts that many "cutoff problems" are likely to exist. She also suggested that she wasn't sure that the company wasn't paying too much for some of the freight in that the various companies don't seem to worry about how much they bill ABB. Although her reply seems to understate the FOB destination issue, I pass further review of it as it does seem slow right now. Staff Auditor Purchase Invoice Sample Random Sample of Recorded Purchases and Support Purchase Invoice Sample Purchases Journal Shipping Document Receiving Report Purchase Authorized with Proper Purchase Requisition Vendor's Invoice Terms as Agreed To Approved Vendor Entry Properly Recorded X X X X Y Y Date 1/04/year 4 1/08/year 4 1/17/year 4 1/21/year 4 1/31/year 4 2/23/year 4 2/29/year 4 3/11/year 4 3/18/year 4 3/20/year 4 4/03/year 4 4/24/year 4 5/03/year 4 5/09/year 4 5/04/year 4 5/11/year 4 5/11/year 4 5/12/year 4 5/13/year 4 5/13/year 4 5/23/year 4 5/25/year 4 6/12/year 4 6/16/year 4 7/10/year 4 7/11/year 4 1/11/year 4 7/19/year 4 8/04/year 4 8/08/year 4 8/14/year 4 9/03/year 4 8/30/year 4 9/06/year 4 Amount 6,320.48 1,818.83 3,543.65 8,116.50 8,159.39 24,728.08 3 ,773.64 4,603.83 9,440.82 17,011.20 1,988.77 2,814.10 4 ,274.49 7,249.98 5,160.40 2,599.61 3,198.94 6,023.23 17,853.91 3,650.91 2,393.86 23,017.58 9,903.19 4,999.80 5 ,460.30 12,834.73 6 ,893.12 18,455.89 7,637.21 1,486.64 6,327.24 5 ,698.78 6,159.75 1,053.70 Date Recorded in Purchases Journal 1/6/year 4 1/15/year 4 1/24/year 4 1/23/year 4 1/31/year 4 2/28/year 4 3/15/year 4 3/13/year 4 3/27/year 4 3/29/year 4 4/06/year 4 4/24/year 4 5/08/year 4 5/24/year 4 5/14/year 4 5/13/year 4 5/17/year 4 5/30y/ear 4 5/19/year 4 5/17/year 4 5/31/year 4 5/28/year 4 6/21/year 4 6/19/year 4 7/17/year 4 7/15/year 4 7/16/year 4 7/21/year 4 8/08/year 4 8/22/year 4 8/19/year 4 9/14/year 4 9/02/year 4 9/09/year 4 9/27/year 4 Invoice No. Vendor 120016 Wernham Hose Inc. 120024 Seven Waters Corp. 120031 Edgingon 120037 Initring Corp. 120043 Reas and Bros. 120051 DACCA 120052 Seven Waters Corp. 120073 LuthorCorp 120074 Went Corporation 120075 DACCA 120091 ZiffoCorp. 120097 DACCA 120112 Mammoth & Co. 120115 Petrox Supply Co. 120115 Universal export 120125 New Approach Inc. 120128 Edgingon 120137 Roxxon Corp. 120140 DACCA 120161 Seven Waters Corp. 120172 Leeding Edge Eng 120178 Chotchkies 120191 Initring Corp. 120217 Milliways Inc. 120221 Initring Corp. 120244 Universal export 120252 Zevo (consignment) 120265 Chotchkies 120268 Petrox Supply Co. 120270 Initring Corp. 120279 New Approach Inc. 120314 Chotchkies 120314 Went Corporation 120336 General Products 120336 Initring Corp. 120351 A.L. Associates 120353 New Approach Inc. 120389 Initring Corp. 120393 Burleigh and Strong 120394 Initring Corp. 120398 DACCA 120402 Roxxon Corp. 120403 Chotchkies 120411 Went Corporation 120423 Roxxon Corp. Date Shipped 1/4/year 4 1/12/year 4 1/19/year 4 1/23/year 4 1/31/year 4 2/26/year 4 3/12/year 4 3/11/year 4 3/22/year 4 3/24/year 4 4/05/year 4 4/24/year 4 5/05 year 4 5/24/year 4 5/14/year 4 5/11/year 4 5/14/year 4 5/17/year 4 5/19/year 4 5/13/year 4 5/31/year 4 5/25/year 4 /15/vear 4 6/17/year 4 7/14/year 4 7/12/year 4 7/11/year 4 7/19/year 4 8/07/year 4 8/18/year 4 8/17/year 4 9/09/year 4 8/30/year 4 9/08/year 4 9/25/year 4 Terms FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Dest FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shippine FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping Date Received 1/6/year 4 1/15/year 4 1/21/year 4 1/23/year 4 1/31/year 4 2/28/year 4 3/15/year 4 3/13/year 4 3/27/year 4 3/29/year 4 4/05/year 4 4/24/year 4 5/08/year 4 5/24/year 4 5/14/year 4 5/13/year 4 5/17/year 4 5/26/year 4 5/19/year 4 5/17/year 4 5/31/year 4 5/28/year 4 6/21/year 4 6/19/year 4 7/17/year 4 7/15/year 4 7/16/year 4 7/21/year 4 8/08/year 4 8/22/year 4 8/19/year 4 9/14/year 4 9/02/year 4 9/09/year 4 9/27/year 4 Y Y X x X T 6 X X X X X Y YY 6 L 9 x X X X Y Y 9/22/year 4 10/11/year 4 10/16/year 4 10/24/year 4 11/06/year 4 11/08/year 4 11/17/year 4 11/18/year 4 11/18/year 4 11/22/year 4 ,972.46 4,991.63 ,575.95 7,003.91 2,359.22 23,737.97 5,925.34 8,965.48 ,954.14 ,969.23 10/26/year 4 10/18/year 4 10/28/year 4 11/08/year 4 11/13/year 4 11/21/year 4 11/24/year 4 11/23/year 4 11/28/year 4 1 0/24/year 4 FOB Shipping 10/16/year 4 FOB Dest 10/25/year 4 FOB Shipping 11/08/year 4 FOB Dest 11/10/year 4 FOB Shipping 11/19/year 4 FOB Dest 11/22/year 4 FOB Shipping 11/20/year 4 FOB Shipping 11/24/year 4 FOB Dest 10/26/year 4 10/18/year 4 10/28/year 4 11/08/year 4 11/13/year 4 11/21/year 4 11/24/year 4 11/23/year 4 11/27/year 4 XL X X X 2 3 Y Y Y Y Y Y Y 1 120427 Chotchkies 120463 Chotchkies 120464 Initring Corp. 120493 Thrift Supplies 120497 ColonialBros Corp. 12/01/year 4 12/17/year 4 12/22/year 4 12/22/year 4 12/29/year 4 2 2,487.39 9 ,922.82 9 ,271.07 3 ,391.50 3 ,696.26 382,938.33 X X X X X 12/05/year 4 12/23/year 4 12/27/year 4 12/25/year 4 12/31/year 4 12/03/year 4 FOB Shipping 12/21/year 4 FOB Shipping 12/24/year 4 FOB Dest 12/22/year 4 FOB Shipping 12/31/year 4 FOB Shipping 12/05/year 4 12/23/year 4 12/27/year 4 12/25/year 4 12/31/year 4 Y Y Y Y Y Y Y Staff Auditor tickmarks. Supplier not authorized Goods not received AThis is a consignment purchase that may be returned to the vendor. Because client intends to sell goods, client is treating as a purchase. CPA Firm Memo Re: Purchase/Results 1/22/year 4 I prepared Exhibit 1 and have performed the tests of controls involving agreeing purchase invoices to related support. Following are relevant findings and suggestions. Two purchases (invoices 120112 and 120351) in the random sample of 50 were to unauthorized vendors for amounts of $4274.49 and $6,972.46-a total of $11,246.95 out of the total $382,938.33 of purchase orders in our sample. Goods received from the first vendor, Mammath & Co., were found to be satisfactory, while goods from the latter, A.L. Associates, were never received. Using attributes sampling, this suggests a population deviation rate of selling to unauthorized vendors of much less than 1% (actually.18% ($6972.46 / $382,938.33], since only the latter deviation leads to a deviation). o Choose an option below: (Original text]Using attributes sampling, this suggests a population deviation rate of selling to unauthorized vendors of much less than 1% (actually .18% [$6972.46 / $382,938.33], since only the latter deviation leads to a deviation). [Delete Text] Using attributes sampling, this suggests to us that the expected misstatement of the financial statements based on this sample is this amount, $11,246.95. Using attributes sampling, this suggests to us an expected deviation rate (of selling to unauthorized vendors) in the population of, at the most, 4%. Using attributes sampling, this suggests to us an expected deviation rate (of selling to unauthorized vendors) in the population of approximately 4%. To address the purchases from unapproved vendors further, I suggest that we: Select a sample of approved vendors and trace them to the purchases journal. Choose an option below: [Original text]Select a sample of approved vendors and trace them to the purchases journal. [Delete Text] Expand our sample by selecting more entries in the purchases journal and tracing vendors to the list of approved vendors. Examine a sample of purchase orders and compare them to purchase invoices. Confirm with approved vendors their inclusion on the approved vendors list. Compare the current sample of 50 purchase invoices to subsequent cash disbursements. RESET CANCEL ACCEPT Perform an Internet search relating to A.L. Associates to obtain more information on this company. o Choose an option below: [Original text]Perform an Internet search relating to A.L. Associates to obtain more information on this company. [Delete Text] Send a confirmation request to A.L. Associates confirming the amount due them. Recommend to the client that the amount purchased from A.L. Associates be paid so as not to impair ABB's credit rating. Determine that no future purchases be made from A.L. Associates. Perform analytical procedures relating to the A.L. Associates payable. RESET CANCEL ACCEPT After completing the tests of controls, two other matters relating to A.L. Associates arose. First, I received an email from the chief purchasing agent saying he had canceled the purchase from A.L. Associates. Nonetheless, our efforts related to unapproved vendors seem appropriate. We should propose an entry debiting accounts payable and crediting purchases relating to this transaction. O Choose an option below: [Original text]We should propose an entry debiting accounts payable and crediting purchases relating to this transaction. [Delete Text] Because the purchases account is debited when goods are received and billed, no correcting entry need be proposed for this situation. Because the company is on a periodic inventory system, we must determine that individual item inventory records are debited properly for the purchase. Pass further consideration of this account other than GAAS-required substantive analytical procedures related to We also should determine that the chief purchasing agent's email to A.L. Associates was sent to the proper address. RESET CANCEL ACCEPT The chief purchasing agent, in an email to me, said that the individual involved in the purchase from A.L. Associates (Alexander Lang), who was no longer with ABB, had also recorded a purchase from an unapproved vendor Choose an option below: [Original text]an unapproved vendor [Delete Text] an approved vendor. O a fraudulent vendor. a company that Mr. Alexander Lang in all likelihood owns. RESET CANCEL ACCEPT The chief purchasing agent, in an email to me, said that the individual involved in the purchase from A.L. Associates (Alexander Lang), who was no longer with ABB, had also recorded a purchase from an unapproved vendor named Al Sound (recording entries was not part of his ordinary responsibilities) for which there was no purchase invoice. I find it surprising that Mr. Lang's initials (AL) are the same as portions of both of these unauthorized suppliers. I suggest that to determine whether there are additional recorded purchases without purchase invoices, we trace a sample (or all) Ipurchase invoices to the purchases journal.ol Choose an option below: [Original text]trace a sample (or all) purchase invoices to the purchases journal. [Delete Text] trace a sample (or all) purchase journal entries to purchase invoices. compare a sample (or all) shipment dates of purchases to data received (per receiving report). perform analytical procedures comparing this year's recorded purchase total with last year's. trace a sample (or all) receiving reports to subsequent cash disbursement. RESET CANCEL ACCEPT I identified one shipment in which items were received on a consignment basis. The client intends to sell these goods if it can and has recorded them in purchases and inventory item totals as of year-end. Because this is a consignment, ABB recorded this consignment in purchases at its estimate of the vendor's cost rather than the cost to ABB. No items have been sold as of year-end. Accounting for this transaction seems incorrect in that the asset and liability involved should not be recorded as a purchase until the goods are sold. o Choose an option below: [Original text]Accounting for this transaction seems incorrect in that the asset and liability involved should not be recorded as a purchase until the goods are sold. [Delete Text] Accounting for this transaction seems correct. Accounting for this transaction seems correct, yet we should include this in our review of subsequent events to identify any sales subsequent to year-end. Accounting for this transaction seems incorrect in that the asset and liability involved should be recorded at the expected (invoice) price to ABB. RESET CANCEL ACCEPT Purchases are recorded when the goods are received, regardless of whether title has passed at shipment. Accordingly, we should select a sample of purchases shipped FOB destination and received shortly before year-end to determine that the purchase is recorded in the proper period. o Choose an option below: [Original text]Accordingly, we should select a sample of purchases shipped FOB destination and received shortly before year-end to determine that the purchase is recorded in the proper period. [Delete Text] Accordingly, we should select a sample of purchases shipped FOB shipping point and received shortly after year- end to determine that the purchase is recorded in the proper period. Accordingly, we should select a sample of purchases shipped FOB destination and received shortly after year- end to determine that the purchase is recorded in the proper period. Accordingly, we should increase the scope of our audit plan by increasing the number of accounts receivable confirmation requests. RESET CANCEL ACCEPT A staff member on your audit team has performed a portion of the audit plan for the audit of ABB, Inc., an issuer. The procedures involved include selecting a random sample of 50 purchase invoices from throughout the year and comparing them to related support. As senior on the engagement, you will now review various points made by the staff auditor. ABB records purchases when it has received the goods and been billed by the vendor (vendor's invoice). It uses a periodic inventory valuation method in which quantities of inventories and costs are updated at the end of each year. The materiality for the audit has, at this point, been set at $60,000. To revise the memo, click on each segment of underlined text below and select the needed correction, if any, from the list provided. If the underlined text is already correct in the context of the report, select [Original Text] from the list. If removal of the entire underlined text is the best revision to the report, select [Delete Text] from the list when that option is available. Conversation with Chief Purchasing Agent Memo O e t 1 of 1 - + Automatic Zoom Audit File Memo on Conversation with Chief Purchasing Agent January 2, year 5 I spoke with the chief purchasing agent about the two purchases in our sample from unapproved vendors. He said that those had been approved by one of his assistants (Alexander Lang), an assistant no longer with ABB. (I determined this was the case.) The one company, Mammath & Co., provided inventory items that were comparable to those provided by other suppliers. The agent was uncertain why the assistant had made the purchase from Mammath but said that he would consider purchasing from them in the future if their prices are competitive when (if) they are ultimately added to the approved vendor list. The other unapproved vendor was A.L. Associates. The chief purchasing agent suggested that he was uncertain about that one and hadn't been aware of it until I brought it up. He keyed in the information on the transaction and confirmed that the purchase and payable are still "open." I brought up the issue of whether any procedures have been followed this year to determine whether year-end purchases are reported in the proper period. He said that he and his staff always make sure that any inventory items received by year-end are included in inventory totals. Additional procedures seem necessary (as outlined in my document) related to the unapproved vendors and the year-end cutoff. Staff Auditor Email from Chief Purchasing Agent O O 1 of 1 - + >> TO: Associate Auditor From: Chief Purchasing Agent Date: January 3, year 5 I looked into the A.L. Associates purchase invoice. Nothing has happened on this in over three months. So, I emailed using the address we have for them a note saying that I canceled the purchase. Here's another thing Lang did before he left. He went into the accounting system and recorded an entry in the purchases journal for which there was no purchase invoice. We followed up on it and didn't find any shipment or anything related to the entry, which was for approximately $700 relating to a company called Al Sound. We never did find any real support relating to that entry so we reversed it out. Thanks for bringing this up. This is craziness caused by that Alexander Lang. I'm glad he's not around anymore. Approved Vendors List O O TRI 1 of 1 ABB Approved Vendors Blanmo Burleigh and Strong Chotchkies ColonialBros Corp. DACCA Data Systems dCom Edgingon General Products Globo Corp. Initring Corp. Klimpy Wing Co. Leeding Edge Eng LuthorCorp Milliways Inc. New Approach Inc. Petrox Supply Co. Reas and Bros. Roxxon Corp. Seven Waters Corp. Thrift Supplies Universal export Went Corporation Wernham Hose Inc. Zevo ZiffoCorp. Conversation with Controller Memo 0 0 1 of 1 - + Conversation with Controller January 4, year 5 I spoke with the controller about shipping terms for purchases. She stated that the company ordinarily simply went along with the preferred method suggested by suppliersmost frequently FOB shipping point. At this point no effort has been made to examine purchases around year-end to determine that they are recoded in the proper period because year-end is ordinarily a slow time and she doubts that many "cutoff problems" are likely to exist. She also suggested that she wasn't sure that the company wasn't paying too much for some of the freight in that the various companies don't seem to worry about how much they bill ABB. Although her reply seems to understate the FOB destination issue, I pass further review of it as it does seem slow right now. Staff Auditor Purchase Invoice Sample Random Sample of Recorded Purchases and Support Purchase Invoice Sample Purchases Journal Shipping Document Receiving Report Purchase Authorized with Proper Purchase Requisition Vendor's Invoice Terms as Agreed To Approved Vendor Entry Properly Recorded X X X X Y Y Date 1/04/year 4 1/08/year 4 1/17/year 4 1/21/year 4 1/31/year 4 2/23/year 4 2/29/year 4 3/11/year 4 3/18/year 4 3/20/year 4 4/03/year 4 4/24/year 4 5/03/year 4 5/09/year 4 5/04/year 4 5/11/year 4 5/11/year 4 5/12/year 4 5/13/year 4 5/13/year 4 5/23/year 4 5/25/year 4 6/12/year 4 6/16/year 4 7/10/year 4 7/11/year 4 1/11/year 4 7/19/year 4 8/04/year 4 8/08/year 4 8/14/year 4 9/03/year 4 8/30/year 4 9/06/year 4 Amount 6,320.48 1,818.83 3,543.65 8,116.50 8,159.39 24,728.08 3 ,773.64 4,603.83 9,440.82 17,011.20 1,988.77 2,814.10 4 ,274.49 7,249.98 5,160.40 2,599.61 3,198.94 6,023.23 17,853.91 3,650.91 2,393.86 23,017.58 9,903.19 4,999.80 5 ,460.30 12,834.73 6 ,893.12 18,455.89 7,637.21 1,486.64 6,327.24 5 ,698.78 6,159.75 1,053.70 Date Recorded in Purchases Journal 1/6/year 4 1/15/year 4 1/24/year 4 1/23/year 4 1/31/year 4 2/28/year 4 3/15/year 4 3/13/year 4 3/27/year 4 3/29/year 4 4/06/year 4 4/24/year 4 5/08/year 4 5/24/year 4 5/14/year 4 5/13/year 4 5/17/year 4 5/30y/ear 4 5/19/year 4 5/17/year 4 5/31/year 4 5/28/year 4 6/21/year 4 6/19/year 4 7/17/year 4 7/15/year 4 7/16/year 4 7/21/year 4 8/08/year 4 8/22/year 4 8/19/year 4 9/14/year 4 9/02/year 4 9/09/year 4 9/27/year 4 Invoice No. Vendor 120016 Wernham Hose Inc. 120024 Seven Waters Corp. 120031 Edgingon 120037 Initring Corp. 120043 Reas and Bros. 120051 DACCA 120052 Seven Waters Corp. 120073 LuthorCorp 120074 Went Corporation 120075 DACCA 120091 ZiffoCorp. 120097 DACCA 120112 Mammoth & Co. 120115 Petrox Supply Co. 120115 Universal export 120125 New Approach Inc. 120128 Edgingon 120137 Roxxon Corp. 120140 DACCA 120161 Seven Waters Corp. 120172 Leeding Edge Eng 120178 Chotchkies 120191 Initring Corp. 120217 Milliways Inc. 120221 Initring Corp. 120244 Universal export 120252 Zevo (consignment) 120265 Chotchkies 120268 Petrox Supply Co. 120270 Initring Corp. 120279 New Approach Inc. 120314 Chotchkies 120314 Went Corporation 120336 General Products 120336 Initring Corp. 120351 A.L. Associates 120353 New Approach Inc. 120389 Initring Corp. 120393 Burleigh and Strong 120394 Initring Corp. 120398 DACCA 120402 Roxxon Corp. 120403 Chotchkies 120411 Went Corporation 120423 Roxxon Corp. Date Shipped 1/4/year 4 1/12/year 4 1/19/year 4 1/23/year 4 1/31/year 4 2/26/year 4 3/12/year 4 3/11/year 4 3/22/year 4 3/24/year 4 4/05/year 4 4/24/year 4 5/05 year 4 5/24/year 4 5/14/year 4 5/11/year 4 5/14/year 4 5/17/year 4 5/19/year 4 5/13/year 4 5/31/year 4 5/25/year 4 /15/vear 4 6/17/year 4 7/14/year 4 7/12/year 4 7/11/year 4 7/19/year 4 8/07/year 4 8/18/year 4 8/17/year 4 9/09/year 4 8/30/year 4 9/08/year 4 9/25/year 4 Terms FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Dest FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shippine FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping FOB Shipping Date Received 1/6/year 4 1/15/year 4 1/21/year 4 1/23/year 4 1/31/year 4 2/28/year 4 3/15/year 4 3/13/year 4 3/27/year 4 3/29/year 4 4/05/year 4 4/24/year 4 5/08/year 4 5/24/year 4 5/14/year 4 5/13/year 4 5/17/year 4 5/26/year 4 5/19/year 4 5/17/year 4 5/31/year 4 5/28/year 4 6/21/year 4 6/19/year 4 7/17/year 4 7/15/year 4 7/16/year 4 7/21/year 4 8/08/year 4 8/22/year 4 8/19/year 4 9/14/year 4 9/02/year 4 9/09/year 4 9/27/year 4 Y Y X x X T 6 X X X X X Y YY 6 L 9 x X X X Y Y 9/22/year 4 10/11/year 4 10/16/year 4 10/24/year 4 11/06/year 4 11/08/year 4 11/17/year 4 11/18/year 4 11/18/year 4 11/22/year 4 ,972.46 4,991.63 ,575.95 7,003.91 2,359.22 23,737.97 5,925.34 8,965.48 ,954.14 ,969.23 10/26/year 4 10/18/year 4 10/28/year 4 11/08/year 4 11/13/year 4 11/21/year 4 11/24/year 4 11/23/year 4 11/28/year 4 1 0/24/year 4 FOB Shipping 10/16/year 4 FOB Dest 10/25/year 4 FOB Shipping 11/08/year 4 FOB Dest 11/10/year 4 FOB Shipping 11/19/year 4 FOB Dest 11/22/year 4 FOB Shipping 11/20/year 4 FOB Shipping 11/24/year 4 FOB Dest 10/26/year 4 10/18/year 4 10/28/year 4 11/08/year 4 11/13/year 4 11/21/year 4 11/24/year 4 11/23/year 4 11/27/year 4 XL X X X 2 3 Y Y Y Y Y Y Y 1 120427 Chotchkies 120463 Chotchkies 120464 Initring Corp. 120493 Thrift Supplies 120497 ColonialBros Corp. 12/01/year 4 12/17/year 4 12/22/year 4 12/22/year 4 12/29/year 4 2 2,487.39 9 ,922.82 9 ,271.07 3 ,391.50 3 ,696.26 382,938.33 X X X X X 12/05/year 4 12/23/year 4 12/27/year 4 12/25/year 4 12/31/year 4 12/03/year 4 FOB Shipping 12/21/year 4 FOB Shipping 12/24/year 4 FOB Dest 12/22/year 4 FOB Shipping 12/31/year 4 FOB Shipping 12/05/year 4 12/23/year 4 12/27/year 4 12/25/year 4 12/31/year 4 Y Y Y Y Y Y Y Staff Auditor tickmarks. Supplier not authorized Goods not received AThis is a consignment purchase that may be returned to the vendor. Because client intends to sell goods, client is treating as a purchase. CPA Firm Memo Re: Purchase/Results 1/22/year 4 I prepared Exhibit 1 and have performed the tests of controls involving agreeing purchase invoices to related support. Following are relevant findings and suggestions. Two purchases (invoices 120112 and 120351) in the random sample of 50 were to unauthorized vendors for amounts of $4274.49 and $6,972.46-a total of $11,246.95 out of the total $382,938.33 of purchase orders in our sample. Goods received from the first vendor, Mammath & Co., were found to be satisfactory, while goods from the latter, A.L. Associates, were never received. Using attributes sampling, this suggests a population deviation rate of selling to unauthorized vendors of much less than 1% (actually.18% ($6972.46 / $382,938.33], since only the latter deviation leads to a deviation). o Choose an option below: (Original text]Using attributes sampling, this suggests a population deviation rate of selling to unauthorized vendors of much less than 1% (actually .18% [$6972.46 / $382,938.33], since only the latter deviation leads to a deviation). [Delete Text] Using attributes sampling, this suggests to us that the expected misstatement of the financial statements based on this sample is this amount, $11,246.95. Using attributes sampling, this suggests to us an expected deviation rate (of selling to unauthorized vendors) in the population of, at the most, 4%. Using attributes sampling, this suggests to us an expected deviation rate (of selling to unauthorized vendors) in the population of approximately 4%. To address the purchases from unapproved vendors further, I suggest that we: Select a sample of approved vendors and trace them to the purchases journal. Choose an option below: [Original text]Select a sample of approved vendors and trace them to the purchases journal. [Delete Text] Expand our sample by selecting more entries in the purchases journal and tracing vendors to the list of approved vendors. Examine a sample of purchase orders and compare them to purchase invoices. Confirm with approved vendors their inclusion on the approved vendors list. Compare the current sample of 50 purchase invoices to subsequent cash disbursements. RESET CANCEL ACCEPT Perform an Internet search relating to A.L. Associates to obtain more information on this company. o Choose an option below: [Original text]Perform an Internet search relating to A.L. Associates to obtain more information on this company. [Delete Text] Send a confirmation request to A.L. Associates confirming the amount due them. Recommend to the client that the amount purchased from A.L. Associates be paid so as not to impair ABB's credit rating. Determine that no future purchases be made from A.L. Associates. Perform analytical procedures relating to the A.L. Associates payable. RESET CANCEL ACCEPT After completing the tests of controls, two other matters relating to A.L. Associates arose. First, I received an email from the chief purchasing agent saying he had canceled the purchase from A.L. Associates. Nonetheless, our efforts related to unapproved vendors seem appropriate. We should propose an entry debiting accounts payable and crediting purchases relating to this transaction. O Choose an option below: [Original text]We should propose an entry debiting accounts payable and crediting purchases relating to this transaction. [Delete Text] Because the purchases account is debited when goods are received and billed, no correcting entry need be proposed for this situation. Because the company is on a periodic inventory system, we must determine that individual item inventory records are debited properly for the purchase. Pass further consideration of this account other than GAAS-required substantive analytical procedures related to We also should determine that the chief purchasing agent's email to A.L. Associates was sent to the proper address. RESET CANCEL ACCEPT The chief purchasing agent, in an email to me, said that the individual involved in the purchase from A.L. Associates (Alexander Lang), who was no longer with ABB, had also recorded a purchase from an unapproved vendor Choose an option below: [Original text]an unapproved vendor [Delete Text] an approved vendor. O a fraudulent vendor. a company that Mr. Alexander Lang in all likelihood owns. RESET CANCEL ACCEPT The chief purchasing agent, in an email to me, said that the individual involved in the purchase from A.L. Associates (Alexander Lang), who was no longer with ABB, had also recorded a purchase from an unapproved vendor named Al Sound (recording entries was not part of his ordinary responsibilities) for which there was no purchase invoice. I find it surprising that Mr. Lang's initials (AL) are the same as portions of both of these unauthorized suppliers. I suggest that to determine whether there are additional recorded purchases without purchase invoices, we trace a sample (or all) Ipurchase invoices to the purchases journal.ol Choose an option below: [Original text]trace a sample (or all) purchase invoices to the purchases journal. [Delete Text] trace a sample (or all) purchase journal entries to purchase invoices. compare a sample (or all) shipment dates of purchases to data received (per receiving report). perform analytical procedures comparing this year's recorded purchase total with last year's. trace a sample (or all) receiving reports to subsequent cash disbursement. RESET CANCEL ACCEPT I identified one shipment in which items were received on a consignment basis. The client intends to sell these goods if it can and has recorded them in purchases and inventory item totals as of year-end. Because this is a consignment, ABB recorded this consignment in purchases at its estimate of the vendor's cost rather than the cost to ABB. No items have been sold as of year-end. Accounting for this transaction seems incorrect in that the asset and liability involved should not be recorded as a purchase until the goods are sold. o Choose an option below: [Original text]Accounting for this transaction seems incorrect in that the asset and liability involved should not be recorded as a purchase until the goods are sold. [Delete Text] Accounting for this transaction seems correct. Accounting for this transaction seems correct, yet we should include this in our review of subsequent events to identify any sales subsequent to year-end. Accounting for this transaction seems incorrect in that the asset and liability involved should be recorded at the expected (invoice) price to ABB. RESET CANCEL ACCEPT Purchases are recorded when the goods are received, regardless of whether title has passed at shipment. Accordingly, we should select a sample of purchases shipped FOB destination and received shortly before year-end to determine that the purchase is recorded in the proper period. o Choose an option below: [Original text]Accordingly, we should select a sample of purchases shipped FOB destination and received shortly before year-end to determine that the purchase is recorded in the proper period. [Delete Text] Accordingly, we should select a sample of purchases shipped FOB shipping point and received shortly after year- end to determine that the purchase is recorded in the proper period. Accordingly, we should select a sample of purchases shipped FOB destination and received shortly after year- end to determine that the purchase is recorded in the proper period. Accordingly, we should increase the scope of our audit plan by increasing the number of accounts receivable confirmation requests. RESET CANCEL ACCEPT