14-25 1. 2. b. c. 3. b. c. 4. b. c. a. b. c. 6. b. c. 7. b. a. a. a. a. a. b. c. a. Test of control Existing sales transactions are recorded.

(Completeness) Documentation Test of control Recorded sales are for shipments actually made to existing customers. (Occurrence) Documentation Substantive test of transactions Recorded sales are for the amount of goods shipped. (Accuracy) Documentation Substantive test of transactions Sales transactions are properly included in the accounts receivable master file and are correctly summarized. (Posting and summarization) Reperformance Test of control Recorded sales returns are for returns from existing customers. (Occurrence) Documentation Test of control (1) Cash received is recorded in the cash receipts journal. (Completeness) (2) Cash receipts are recorded on the correct dates. (Timing) Observation or documentation Substantive test of transactions (1) Recorded receipts are for funds actually received by the company. (Occurrence) (2) Cash received is recorded in the cash receipts journal. (Completeness) (3) Cash receipts are deposited at the amount received. (Accuracy) (4) Cash receipts are recorded on the correct dates. (Timing) Documentation

5.

c.

14-32
TransactionRelated Audit Objective Occurrence Accuracy

Control 1.

Potential Financial Statement Misstatement if Control is Absent Sales may be recorded for invalid or non-existent products. Sales may be processed based on inaccurate price information. Sales may be recorded for non-existent products. Sales may be processed for existing products using quantities ordered, even when ordered quantities are not on hand. Sales may be processed for customers who are unable to pay. Shipments may be made to persons making an unauthorized credit card purchase (e.g., with a stolen credit card). Sales may be processed inaccurately (e.g., wrong product, wrong price, wrong quantity). Sales may be recorded even though shipment has not occurred. Sales may be recorded in the wrong time period.

2.

Occurrence Accuracy

3.

Occurrence

4.

Occurrence

5.

Accuracy

6.

Occurrence Timing

14-35 ACL Problem a. There are 112 transactions in the month of September, 2002. The total amount of these transactions is $127,941.13 (Filter expression is DATE1 >= 20020901 AND DATE1 <= 20020930; Count command; then Total command). b. Type IN has the highest count. See the following report created using the Summarize command:
Page ... 1 04/10/2007 12:09:18 Produced with ACL by: ACL Educational Edition - Not For Commercial Use TYPE AMOUNT COUNT AA CN IN PM TR -533.59 -9025.02 525259.16 -45281.38 -1538.48 468880.69 1 108 588 71 4 772

c. There are 588 sales invoices (IN), totaling $525,259.16. The largest single invoice amount is $5,549.19 and the average invoice amount is $893.30. (Filter by invoice type = IN; then use Statistics command on the Amount column.) d. Leaving the filter from part c intact, create a computed field with the following expression: DUE DATE1 and then add this column to the table view. Several of the invoices have negative results, which means that possibly the wrong year was used for the due date. Also, some are 90 days old, which indicates potential collection problems. See the following printout:, which is the result of using the Stratify command after a filter is applied to isolate IN transactions greater than or equal to $300.

11-26
1. a. b. c. a. b. c. 3. a. b. c. a. b. c. 5. 6. a. b. c. a. b. c. 7. a. b. c. 8. a. b. c. Error Internal verification of invoice preparation and posting by an independent person. Test clerical accuracy of sales invoices. Fraud. The prelisting of cash receipts should be compared to the postings in the accounts receivable master file and to the validated bank deposit slip. Trace cash received from prelisting to cash receipts journal. Confirm accounts receivable. Error. Use of prenumbered bills of lading that are periodically accounted for. Trace a sequence of prenumbered bills of lading to recorded sales transactions. Confirm accounts receivable at year-end. Error. No merchandise may leave the plant without the preparation of a prenumbered bill of lading. Trace credit entries in the perpetual inventory records to bills of lading and the sales journal. Confirm accounts receivable at year-end. Error. Internal review and verification by an independent person. Test accuracy of invoice classification. Error Online sales are supported by shipping documents and approved online customer orders. Trace sales journal or listing entries to supporting documents for online sales, including sales invoices, shipping documents, sale orders, and customer orders. Error Sales invoices are prenumbered, properly accounted for in the sales journal, and a notation on the invoice is made of entry into the sales journal. Account for numerical sequence of invoices recorded in the sales journal, watching for duplicates. Confirm accounts receivable at year-end. Fraud. All payments from customers should be in the form of a check payable to the company. Monthly statements should be sent to all customers. Trace from recorded sales transactions to cash receipts for those sales; confirm accounts receivable balances at year-end.

2.

4.

14-30 a.
DEFICIENCY 1. Financial secretary exercises too much control over collections. 2. Finance committee is not exercising its assigned responsibility for collection. 3. The finance committee is responsible for the auditing function and administration of the cash function. Moreover, the finance committee has not performed the auditing functions. 4. The head usher has sole access to cash during the period of the count. One person should not be left alone with the cash until the amount has been recorded or control established in some other way. RECOMMENDED IMPROVEMENT To extent possible, financial secretary's responsibilities should be confined to record keeping. Finance committee should assume a more active supervisory role. An audit committee should be appointed to perform periodic auditing procedures or engage outside auditors.

The number of counters should be increased to at least two, and cash should remain under joint surveillance until counted and recorded so that any discrepancies will be brought to attention. RECOMMENDED IMPROVEMENT

DEFICIENCY

5. The collection is vulnerable to robbery while it is being counted and from the church safe prior to its deposit in the bank.

The collection should be deposited in the bank's night depository immediately after the count. Physical safeguards, such as locking and bolting the door during the period of the count, should be instituted. Vulnerability to robbery will also be reduced by increasing the number of counters. The financial secretary should receive a copy of the collection report for posting to the financial records. The head usher should maintain a copy of the report for use by the audit committee. Contributions should be deposited intact. If it is considered necessary for the financial secretary to make cash expenditures, he should be provided with a petty cash fund. The fund should be replenished by a check based upon a properly approved reimbursement request and satisfactory support. Members should be asked to make

6. The head usher's count lacks usefulness from a control standpoint because he surrenders custody of both the cash and the record of the count. 7. Contributions are not deposited intact. There is no assurance that amounts withheld by the financial secretary for expenditures will be properly accounted for.

8. Members are asked to draw checks to

"cash," thus making the checks completely negotiable and vulnerable to misappropriation.

checks payable to the church. At the time of the count, ushers should stamp the church's restrictive endorsement (For Deposit Only) on the back of the check. Key employees and members involved in receiving and disbursing cash should be bonded. Especially because much of the work involved in cash collections is performed by unpaid, untrained church members, often on a short-term basis, detailed written instructions should be prepared. The envelope system should be encouraged. Ushers should indicate on the outside of each envelope the amount contributed. Envelope contributions should be reported separately and supported by the empty collection envelopes. Prenumbered envelopes will permit ready identification of the donor by authorized persons without general loss of confidentiality.

9. No mention is made of bonding.

10. Written instructions for handling cash collections apparently have not been prepared.

11. The envelope system has not been encouraged. Control features that it could provide have been ignored.