Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Objective. Express the objective in terms of the facts supposedly asserted in financial records, accounts, and statements. Control. Explanation of desirable controls, missing controls, and

Objective. Express the objective in terms of the facts supposedly asserted in financial records, accounts, and statements.

Control. Explanation of desirable controls, missing controls, and especially the kinds of "deviations" that could arise from the situation described in the case.

Tests of controls. what may be some procedures for getting evidence about existing controls, especially procedures that could discover deviations from controls. If there are no controls to test, then there are no procedures to perform; go to the next section. A "procedure" should instruct someone about the source(s) of evidence to tap and the work to do.

Audit of balance. What are procedures for getting evidence about the existence, completeness, valuation or allocation, or rights and obligations assertions identified in your objective section.

Discovery summary. Discuss short statement about the discovery you expect to accomplish with your procedures.

Bailey Books Inc. is a retail distributor of upscale books, periodicals, and magazines. Bailey has 431 retail stores throughout the southeastern states. Three full-time purchasing agents work at corporate headquarters. They are responsible for purchasing all inventory at the best prices available from wholesale suppliers. They can purchase with or without obtaining competitive bids. The three purchasing agents are R. McGuire in charge of purchasing books, M. Garza in charge of purchasing magazines and periodicals, and L. Collins (manager of purchasing) in charge of ordering miscellaneous items such as paper products and store supplies.

One of the purchasing agents is suspected of taking kickbacks from vendors. In return, Bailey is thought to be paying inflated prices, which first are recorded in inventory and then in cost of goods sold and other expense accounts as the assets are sold or used.

The duties of Collins, the manager in charge, do not include audit or inspection of the performance of the other two purchasing agents. No one audits or reviews Collins's performance.

The purchasing system is computerized and detail records are retained. An extract from these records is in Exhibit 8.51.1. This kickback scheme has been going on for two or three years. Bailey Books could have overpaid by several hundred thousand dollars.

EXHIBIT 8.51.1?BAILEY BOOKS, INC

image text in transcribed
Selected Purchases 2015-2017 Percent of Purchases Bid Vendor Items Purchased 2015 2016 2017 Date of Last Bid (3-yr. period) Armour Books $ 83,409 $ 02,929 $ 810,103 12/01/13 87% Burdick Sundries 62,443 70,949 76,722 Canon Magazines 1,404,360 1,947,601 2,361, 149 11/03/15 94 DeBois, Inc. Paper 321,644 218,404 121,986 06/08/15 57 Elton Books Books 874,893 781,602 649, 188 07/21/15 91 Fergeson Books 921,666 1,021,440 1,567,811 09/08/15 88 Guyford Magazines 2,377,821 2,868,988 3,262,490 10/08/15 81 Hyman, Inc. Supplies 31,640 40,022 46,911 10/22/15 Intertec Books 821,904 898,683 949,604 11/18/15 86 Jerrico Paper 186,401 111,923 93,499 10/04/15 72 Julian-Borg Magazines 431,470 589, 182 371,920 02/07/15 44 King Features Magazines 436,820 492,687 504,360 11/18/15 89 Lycorp Sundries 16,280 17,404 21,410 Medallian Books 61,227 410,163 12/15/15 99 Northwood Books 861,382 992, 121 12/07/14 Orion Corp. Paper 86,904 416,777 803,493 11/02/14 15 Peterson Supplies 114,623 N/A /A Quick Supplies 96,732 110,441 11/03/15 Robertson Books 2,361,912 3,040,319 3,516,811 12/01/15 96 Steele Magazines 621,490 823,707 482,082 11/03/15 90 Telecom Sundries 81,406 101,193 146,316 - Union Bay Books 4,322,639 4,971,682 5,368, 114 12/03/15 97 141,909 143,286 06/09/15 89 Victory Magazines 123,844 Williams Sundries 31,629 35, 111 42,686

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Audit Sampling

Authors: Ray Whittington, Dan M Guy, D R Carmichael

5th Edition

047137590X, 9780471375906

More Books

Students also viewed these Accounting questions

Question

=+At age 6, average height Answered: 1 week ago

Answered: 1 week ago