Case 4: Audit of cash

As the auditor for Pokola Limited, you are to test the cash handing procedure at the company. In a meeting with the CFO during the planning stages of the audit, the auditor indicated that there was a high risk of misstatement due to fraud in the cash account, given the lack of proper segregation of duties. The auditor identified the following weaknesses in the internal control of the company as far as cash handling and processing is concerned:

Lack of segregation of duties of persons assigned to cash handing

Lack of count of paying customers

No duplicate receipts are used by the clerks to record cash collected

Lack of clarity of records on cash receipts

Long time gap between collected receipts and banking

Lack of evidential proof of deposited cash

Lack of internal control and accountability of cash handing in the company

Required:

From the list above, chose FIVE items and, as the auditor of the company discuss what tests could you perform to detect fraudulent activities in the cash account?

Case 6: Analytical procedure:

During the course of an audit engagement, the auditor will have planned many audit tests and procedures and designed the collection and timing of relevant audit evidence using appropriate analytical procedures.

Required:

For each analytical procedure listed below, identify a potential misstatement in the property management accounts that the auditor could detect.

The auditor computes the ratio of depreciation expense to the related property, plant, and equipment accounts and compare to prior years' ratios.

(5 marks)

The auditor compares monthly or annual repairs and maintenance with previous years.

(5 marks)

The auditor computes ratio of insurance expense to the related property, plant, and equipment accounts and compare to prior years' ratios.

(5 marks)

Case 7: Substantive audit procedures

Saleem & Company are a firm of independent auditors that are currently auditing the financial statements of Madac Construction LLC, for the year ended 31^stDecember 2019. Madac's financial statements reflect a substantial amount of mobile construction equipment used in the firm's constructions operations. The equipment is accounted for in a subsidiary ledger. The auditor has developed an understanding of internal control system of Madac and set the control risk at a moderate level.

Required:

Identify the substantive audit procedures the auditor should use in examining mobile construction equipment and related depreciation in Madac's financial statements.

Case 8: Audit of perpetual inventory and audit procedures

Alpha Plastics Limited conducts a limited inventory count each year-end. This includes limited count of purchased parts and supplies in its main warehouse but instead uses statistical sampling to estimate the year-end inventory. Alpha maintains aperpetual inventoryrecord of parts and supplies and believes that statistical sampling is highly effective in determining inventory values and is sufficiently reliable to make a physical count of each item of inventory unnecessary.

Required:

A.Identify the audit procedures that should be used by the independent auditor are in addition to, normal required audit procedures when an entity utilizes statistical sampling to determine inventory value and does not conduct a 100% annual physical count of inventory items.

(10 marks)

B.List at least 5 normal audit procedures that should be performed to verify physical quantities whenever an entity conducts a periodic physical count of all, or part, of its inventory.