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8, 10, & 11 Textbook Exercises
8-16 (Analytical Procedures) in audit planning the audit of Circuits Technology, Inc. (CTI). CTI resells sets up, and supplies computer networking items (customer software, gateway software and hardware, and twinax hardware) to other companies. Figure 8-14 furnishes some overview information from CTI’s fiscal reports. Required a. Calculate purchases, gross margin, inventory turn days, accounts receivable turn days, and accounts payable turn days for the years ended 20x2, 20x3, 20x4, 20x5. b. Describe the trends identified by performing analytical procedures in the gross operating cycle, the net operating cycle, and gross margin.
2% 199 95 294 43 251 Inventory Turn Days Accounts Receivable Turn Days Gross Operating Cycle Accounts Payable Turn Days Net Operating Cycle b.027 175 3. what might these trends indicate about the potential misstatement in inventory? 8-16. d.4% 199 83 283 36 246 $ $ $ $ $ $ 837 1. develop an expectation range for inventory turn days. net Inventory Accounts Payable Sales Cost of Sales 20x4 $ $ $ $ $ $ 962 1.000 for inventory.812 1.022 1.327 380 5.859 2.883 52.099 $ $ $ $ $ $ 20x5 822 1.968 $ $ $ $ $ $ $ 1. inventory change days.025 164 3.c. the rise in gross profit to the best resulted in 4 year period . and the gross and net working cycle. and the improved collection time period.099 225 4.923 2. Significant tendencies for 20x5 (the likely year going to be audited) incorporate the substantial rise in inventory turn days.335 1. .3% 160 70 230 33 197 2.780 1.121 1. accounts due turn days.947 $ $ $ $ $ $ 1.827 $ 52.905 1. a.046 1.1% 185 97 282 51 231 1. The following table computes purchases.691 2. gross margin amount.171 $ 48.399 2. With respect to inventory. If tolerable misstatement is $45.003 201 4.638 2. Exhibit 8-16: CTI Selectied Financial Information ($000) 20x1 20x2 20x3 Accounts Receivable.993 $ 52. accounts receivable turn days.623 2.224 Gross Margin Purchases Gross Margin 2.
Computer use controls 4.5.2. 5. 4. rising to 52. 6.6. 10-32 (Components of Internal Control): Internal controls can be categorized using the following framework. Computer overall controls 4.1.84 days d. 1.3.3. Regulators on the fiscal reporting procedure 4.4.3. To turn tolerable misstatement into stock turn days the auditor would utilize the method for computing stock turn days as follows: Tolerable Misstatement / Cost of Goods Sold * 365 = 45 / 1. whereas stock turn days also enhances considerably. 3. Management atmosphere Risk evaluation Information and communication Management actions Approval Information handling controls 4. Physical regulations Performance evaluations Regulations on management discretion in fiscal reporting Checking Antifraud systems and regulations .1. rising to 199 days.c.2.859 * 365 = 7. The most important modifications in 20x5 are the combined reduction in purchases and rise in gross profit. Segregation of responsibilities 4.3. The rise from 183 day stock turn to 199 day stock turn is important provided the outcomes in part c above. 4. 4. This is possible proof of an overstatement of stock which may be because of either a mistake in counting or computing stock or because of deceptive fiscal reporting. 4. 2. 4.3.4%.
The computer analyzes the data on the sales invoice with actual delivery information. The executives of every of Waterfront’s production divisions should analyze all expenses billed to their responsibility center weekly. e. and maintains a record of plans and files which have been accessed. c. Accessibility to spreadsheets used in the fiscal reporting procedure is restricted and spreadsheets are analyzed with test data on a quarterly basis. m. f. Inc. b. A computer software prints a daily report of all deliveries which have not yet been invoiced to clients. d. and controller analyze the fiscal effects of business risks yearly to ensure that regulations are established to tackle important business risks.Below is a listing of controls recommended by Waterfront. h. Client billing problems are forwarded to internal audit for follow-up and settlement. j. Management has established a code of conduct which incorporates regulations about clashes of interest for buying agencies. Security software restricts accessibility to applications and documents. Any software program modification should be accepted by user divisions after checking the whole program with test data. that is then analyzed by the security manager daily. A panel of the board of directors assesses and monitors business risks. Waterfront has established a disclosure board to analyze the selection of latest accounting procedures. CFO. The CEO. n. i. Human resources concentrate on ensuring that accounting employees have sufficient skills for work performed in invoicing and accounts receivable. k. g. The documented deal trail for all credit sales is recorded in organization policy manuals. a. The controller analyzes sales and collections bimonthly. Required . l.
CFO. 4. f. Indicate the category of internal control applicable to each procedure using the framework above. and controller evaluate the fiscal effects of business risks yearly to make sure that regulations are established to tackle important business risks.1 and Disclosure Practically any claim Presence and Happening. Identify an assertion to which each procedure pertains (some procedures may have a pervasive impact on multiple assertions). Completeness. 10-32 Control Category a. Security software program restricts accessibility to 4.a.3. The CEO. Assessment and e. Human resources concentrates on making sure that accounting employees have sufficient skills for work carried out in invoicing and accounts receivable.5 4. The executives of every of Waterfront’s production divisions should analyze and expenses billed to their responsibility center every week. Management has established a code of conduct which 1 incorporates regulations about clashes of interest for buying agencies. b. d. Demonstration c. 4. Waterfront has set up a disclosure board to analyze the selection of latest accounting procedures. g. Any kind of software program modification should be accepted by user divisions after screening the whole program along with test data.3.1 1 Practically any claim Presence and 2 Allocation Assessment and Allocation .3. b.6 Assertion(s) Presence and Happening Assessment and Allocation.
4. A software program prints a daily record of all deliveries which have not yet been invoiced to clients.3. Client billing problems are given to internal audit for follow-up as well as settlement. and disclosure parts of the fiscal reports.2 5 3 1 4. Accessibility to spreadsheets used in the fiscal reporting procedure is restricted and spreadsheets are checked along with test data on a quarterly basis. l. h. m.applications and documents.3. i. Required . The controller analyzes sales as well as collections bimonthly. A panel of the board of directors examines and monitors business risks. 4. k.3. n. The documented deal trail for all credit sales is recorded in organization policy manuals. and maintains a record of applications and documents which have been accessed that is analyzed by the security manager every day. deal type.2 Happening Completeness The controller analyzes sales as well as collections bimonthly.5 4. Presence and Happening Practically any claim Practically any claim Practically any claim Practically any claim j. The computer system analyzes the information on the sales invoice with actual delivery information.3 11-21 (Assessing control risk): An auditor must have a sufficient knowledge of each one of the parts of an entity’s method of internal control to schedule the audit of the entity’s fiscal reports and to analyze control risk for the remarks embodied in the account balance.
The auditor's judgments about the kind of proof. d. a. b. or since analyzing their effectiveness would be unproductive. The auditor's knowledge of the internal regulations must be recorded in the shape of completed surveys. and/or narrative memoranda. c. are not likely to work. An auditor might analyze control risk at the highest level for some or all claims since the auditor thinks internal controls are not likely to relate to a claim.a. the presence of other evidential material. To support evaluating control risk below the highest level. What must an auditor do to support assessing control risk at less than the maximum level when the auditor has determined that controls have been placed in operation? c. an auditor should decide if internal controls are correctly developed to avoid or find material misstatements in particular fiscal report claims and get proof by way of tests of controls which the policies and procedures are operating efficiently. While looking for an additional decrease in the scheduled evaluated level of control risk. flowcharts. What are an auditor’s documentation requirements concerning an entity’s system of internal control and the assessed level of control risk? 11-21. What should an auditor consider when seeking a further reduction in the planned assessed level of control risk? d. When the auditor's . b. the timeliness of proof. and audit staffing must be recorded in an audit system and relevant working documents. the origin of proof. the auditor must look into the possibility that proof can be acquired in a cost-efficient way to support a lower assessment. Explain the reasons an auditor may access control risk at the maximum level for one or more assertions embodied in an account balance.
When the analysis is that control risk is under the highest. .evaluation of control risk is at the highest level. only that decision must be recorded. the basis for the analysis should also be recorded.
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