This simulation presents the Keystone Computers & Networks, Incorporated (Keystone) Cash Work Memo for the general account and petty cash prepared by two members of your audit teamyour responsibility is to evaluate various statements included in that document, considering the various exhibits. Background financial and other information on Keystone is included in Appendix 6C of Chapter 6.

The controller of Keystone Computers & Networks Incorporated (Keystone), a nonissuer, prepared six exhibits relating to Keystones General Account cash position at year 5 year-end. A new audit assistant with your CPA firm has begun the audit of cash but has a number of questions and comments based on a quick examination of the exhibits, now included in the working papers, and a discussion of some matters with the controller of Keystone.

Required: Your job as senior on the engagement is to review the various points made by the assistant, including consideration of the exhibits. For each of the sentences called out in the points on the document, determine if the current language is appropriate as is, should be removed altogether, or replaced with any of the provided alternatives. Links to each of the exhibits are provided in the document, but are available in the list below for convenience.

Exhibit 3 - Standard Bank Confirmation

Centered 3-line heading: Line 1: Keystone Computers & Networks, Inc.; Line 2: Standard Bank Confirmation; Line 3: Date: 12/31/year 5 Followed by the Centered two-line title of the form: STANDARD FORM TO CONFIRM ACCOUNT; BALANCE INFORMATION WITH FINANCIAL INSTITUTIONS. Below and right of the title is a line for the Customer Name [Keystone Computers & Networks, Inc. (in this example)]. Below this is the following verbiage: We have provided to our accountants the following information as of the close of business on 12/31/Year 5, regarding our deposit and loan balances. Please confirm the accuracy of the information, noting any exceptions to the information provided. If the balances have been left blank, please complete this form by furnishing the balance in the appropriate space below. *Although we do not request or expect you to conduct a comprehensive, detailed search of your records, if during the process of completing this confirmation additional information about other deposit and loan accounts we may have with you comes to your attention, please include such information below. Please use the enclosed envelope to return the form directly to our accountants.

Below and to the left of the title of the form is the financial institutions name and address [ First National Bank 1601 E. Broadway Tempe, AZ 85282 (in this example)] along with a disclosure that ORIGINAL To be mailed to accountant.

Part 1 of the form shows a four-column table below the disclosure: 1. At the close of business on the date listed above, our records indicated the following deposit balance(s): The table has the following column headings: Account Name, Account No. Interest Rate, and Balance. Line 1 entries, respectively, are: General, 4344-7834, -0-, $74,636.73.

Part 2 of the form shows a six-column table below the disclosure: 2. We were directly liable to the financial institution for loans at the close of business on the date listed above as follows. The table has the following column headings: ACCOUNT NO./ DESCRIPTION, BALANCE, DUE DATE, INTEREST RATE, DATE THROUGH WHICH INTEREST IS PAID, and DESCRIPTION OF COLLATERAL. No data are shown.

Section Two is followed by a line for Customers Authorized Signature [Judith Hamilton] and the date [12/29/Year 6]. Then there is another disclosure: The information presented above by the customer is in agreement with our records. Although we have not conducted a comprehensive, detailed search of our records, no other deposit or loan accounts have come to our attention except as noted below. This is followed by a line for the Financial Institution Authorized signature [Will Jones], date [01/05/Year 6], and title [Assistant Controller]. A box is shown labeled Exceptions and Comments [ Information is not guaranteed to be accurate nor current and may be a matter of opinion. W.J.], followed by the CPAs name and address [Gill & Co, CPAs 2552 E. Camelback Road Phoenix, AZ 85002], which is preceded by the statement: Please return this form directly to our accountants. A footnote: *Ordinarily, balances are intentionally left blank if they are not available at the time the form is prepared.

To:	Audit Senior
From:	Audit Assistant
Re:	Keystone Computers & Networks Incorporated General Account Cash Work
Date:	January 11, year 6

I have a number of points related to the auditing procedures I applied to Keystones cash accounts as follows:

Standard Bank Confirmation (Exhibit 3): The bank representative added a comment to the confirmation. The comment is a boilerplate disclaimer of liability that definitely does not affect the reliability of the information we obtained. (Callout #3)

3. The comment is a boilerplate disclaimer of liability that definitely does not affect the reliability of the information we obtained.

Answer options:

Retain the original text.

Delete entire point 3.

Replace with Because the bank representative added a disclaimer to the confirmation, we must discard this confirmation and use other auditing procedures to establish the balances.

Replace with Because the bank representative added a disclaimer to the confirmation, we are required by the professional standards to consider this a fraud risk factor and to consider the need for additional fraud-related procedures.

Replace with Therefore, we are required to reconfirm the account electronically in this circumstance.

Replace with This comment (disclaimer) on the confirmation may cast doubt about the completeness and accuracy of the information contained in the response and, accordingly, we should obtain further audit evidence.