Q

The staff auditor returned to Kansas Cay after a week and and that everything for at the Wichta are, which won good, mught the secon

because the time budget had been cut from the previous year, and the audit team was under time pressure is tenh the engagment

The sensor reviewed the staff auditors working papers and noted that the Wichita stare had booked a hand attents of Us $106.000

debt to sales and a tredit to accounts recevable to adjust the general ledger accounts receivable account to the accounts lay

ledger is how the description read. The senior asked the staff auditor how an error that big could have happened and histor the Wich

manager said there had been some problems metalling the accounting system at the newe

initially, the senine auditor thought the adjustment wis proper since the general ledger balance was now in agreement with the subudury ledp

However, a short time later she was reviewing the analytical procedures performed by the stuff auditor and noted that the grues percentage

at the Wichita store was significantly lower than the gross margin at the main store in Kansas City, the staff auditors working papers the

following explanation: "Per the store manager, prices were reduced at the Wichita store to attract customers in a new location

The next day, the senior auditor was talking to the controller at the main store and she mentioned how it looked like there had been a few p

at the Wichita store that appeared to be resolved guess these prce reductions you had earlier in the year rely worked to attract new cu

she said. Trice reduction?" said the controlier. What price reduction The company is a wholesale distributor does not have a re

might find in a retail store

The senior auditor questioned the controller about the problems the company had encountereil imtating the accounts receive the

Wichita store. The controller said that the staff auditor must have munderstood because no problems had ever been reported by the Wa

manager.

The sensor realized something wasn't right and discussed the matter with the audit manager and that aude ecutive The aud manage then

montreached that the should eated

discussed the auditors encerms with the controller and company owner Agreement was reached that the situation should be further

According the auditors expanded their fieldwork, tracing customer payments to the Wichita store back and forth between the subudiary lead

the general indger

Their expanded work uncovered the fact that the Wichita store manager was stealing jayments customers made on account. That why the

subsidiary ledger was but of balance with the general ledger To cover up theft the manager dettet the sales out with the

margins of the two stores were not aligned

Based on this passage answer the fodowing question

1. Define professional skepticism. Explain why professional skepticism is important when considering tak

2. What internal controles created an opportunity for the Wichita store manager to commit fraudte specific

3. What edence tall caused the auditors to suspect that a frauat might have occurred specific

4. The stuft auditur faded to go due consideration to the apparent warming signs of fraud What are some of the many oth

nether missed the red flags or failed to adequately pursue them ?