INTEGRATED CASE APPLICATION$-$

PINNACLE MANUFACTURING: PART V

$14-37($Objectives $14-3,14-5)$ In Part IV of this case study, you obtained an understanding of internal control and made an initial assessment of control risk for each transaction$-$related audit objective for acquisition and cash disbursement transactions. The purpose of Part V is to continue the assessment of control risk by determining the appropriate tests of controls and substantive tests of transactions. In order to do this, you must complete the steps needed to prepare a high$-$quality performance format audit program for tests of controls and substantive tests of transactions for acquisitions and cash disbursements.

Assume in Part IV that you identified the following as the key controls you want to rely on $($even though your answers were likely different from these$)$:

Segregation of the purchasing, receiving, and cash disbursements functions

Purchasing can only make acquisitions from a preapproved vendor list

Use of prenumbered voucher packages, properly accounted for

Use of prenumbered checks, properly accounted for

Use of prenumbered receiving reports, properly accounted for

Internal verification of document package, including comparison to preapproved vendor list, before check preparation

Review of supporting documents and signing of checks by an independent, authorized person

Cancellation of documents prior to signing of the check

Monthly reconciliation of the accounts payable master file with the general ledger

Independent reconciliation of the monthly bank statements

Independent review of financial statement disclosures related to acquisitions and cash disbursements

Required a$.$ Access the file listing the $11$ controls online at

www$.$pearsonhighered.com$/$arens$.$ The file, Case $14-37$ Key Controls List, is included with the Pinnacle files.

b$.$ For each control, identify the transaction$-$related audit objective$($s$)$ that it partially or fully satisfies.

c$.$ For each control, list one audit procedure to test the control. Use the most reliable test of control evidence that you can think of$.$ Write the audit procedure in good form.

d$.$ For each test of control identified in c$.,$ list one substantive test of transactions audit procedure to test whether the control is operating effectively. Use the most reliable substantive tests of transactions evidence that you can think of$.$

c$.$ In the same file, below the list of key controls, locate the table titled "Substantive Tests of Transactions by Audit Objective." Decide and write one substantive test of transactions audit procedure for each transaction$-$related audit objective for acquisitions and one substantive test of transactions for each transaction$-$related audit objective for cash disbursements. At least one of the audit procedures must be different from the ones in requirement d$.$ Prepare a performance audit program for acquisitions and cash disbursements using all audit procedures in requirements c$.$ and d$.$ See Figure $14-6($p$.477)$ for a format. To the extent possible, follow the approach in procedure $13a.$ through $e,$ in Figure $14-6$ of having "one starting point" procedure followed by other related procedures. The audit program should include procedures for both acquisitions and cash disbursements. Be sure to eliminate anv dunlicates for both acquisi$-$