Question One:

The following are commonly performed tests of controls and substantive tests of transactions audit procedures in the sales and collection cycle, acquisition and payment cycle, and inventory and warehousing cycle:

1. Account for a sequence of shipping documents and examine each one to make sure that a duplicate sales invoice is attached.
2. Compare the quantity and description of items on shipping documents with the related duplicate sales invoices.
3. Trace a sample of voucher packages to the acquisitions journal throughout the year to determine that the transaction is included in the acquisitions journal.
4. Determine if the transaction was recorded in the correct month, based on when the goods were received and the terms of the transaction.
5. Compare the unit price on the final inventory summary with vendors invoices.

Required:

1. Identify for each test the related cycle.
2. Identify whether each audit procedure is a test of control or a substantive test of transactions.
3. State which of the six transaction-related audit objectives each of the audit procedures fulfills.

Question Two:

The following misstatements are included in the accounting records of Westgate Manufacturing Company.

1. Each month, a fraudulent receiving report is submitted to accounting by an employee in the receiving department. A few days later, he sends Westgate an invoice for the quantity of goods ordered from a small company he owns and operates in the evening. A check is prepared, and the amount is paid when the receiving report and the vendors invoice are matched by the accounts payable clerk.
2. Telephone expense (account 2112) was unintentionally charged to repairs and maintenance (account 2121).

Required:

1. For each misstatement, identify the transaction-related audit objective that was not met.
2. For each misstatement, state a control that should have prevented it from occurring on a continuing basis.
3. For each misstatement, state a substantive audit procedure that could uncover it.

Question Three:

The Frist Corporation has the following internal controls related to inventory:

1. Only authorized inventory warehousing personnel are allowed in inventory storage areas.

2. All inventory products are stored in warehousing areas that are segregated from other storage areas used to house equipment and supplies.

3. All inventory held on consignment at Frist Corporation is stored in a separate area of the warehouse.

Required:

For each of the internal controls:

a . Identify the related transaction-related audit objective(s) affected by the control.

b . Describe risks the control is designed to mitigate.

c . Design a test of control to determine if the control is operating effectively.