Workshop Week 10 Solutions

Q15.39

Westgate Manufacturing Company

MISSTATEMEN a. b. c.
T
TRANSACTION- PREVENTIVE SUBSTANTIVE
RELATED AUDIT CONTROL PROCEDURE
OBJECTIVE NOT
MET

1
1 Acquisition Account Examination of
transactions are distributions are supporting invoices
properly classified. reviewed by a for entries into the
(Classification) responsible repairs and
individual prior to maintenance account
entry into the to verify the proper
system. account distribution.

2 Acquisition Receiving reports At the date on which

transactions are to be delivered to the cutoff test is to
recorded on the accounting at the be performed, the
correct dates. end of the day on auditor obtains the
(Timing) which the raw number of the last
materials are receiving report(s)
received. that should have
been recorded and
accounts for the
Accounting numerical sequence
department of all previous
accounts for receiving report(s)
numerical that should have
sequence of been recorded.
receiving reports
after obtaining
the last number
used from
receiving
personnel.

2
3 Recorded cash Once cheques are Review physical
payments are for signed by the inventory shortages
goods and services accountant, they for unusual or
actually received. are returned to inconsistent
(Occurrence) someone occurrences.
independent of
purchasing and
accounts payable Compare payee on

for mailing. the paid cheque at

the bank to the
company name on
All supporting the vendor’s invoice.
documents are
cancelled to
prevent reuse.

4 Recorded cash Cheques are Compare cheque

payment prepared using a amounts to entries in
transactions are computer the cash payments
correctly stated. process, which journal.
(Accuracy) assures
simultaneous
preparation of Test bank

cheque and reconciliation.

journal. Reconcile
bank account on
a timely basis at
the end of each
month.

3
5 Cash payment Transactions are Trace last cheques
transactions are recorded written to cash
recorded on the automatically payments journal.
correct dates. using a computer
(Timing) process with the
same information Examine date
as the cheque cheques paid by the

preparation. bank to determine if

cheques were held
by the client.

6 Recorded Require that an Examine underlying

acquisitions are for authorised documents for
goods and services purchase order reasonableness and
received, and/or approval authenticity.
consistent with the of each invoice by
best interests of the ordering
the client. department head
(Occurrence) be required
before payments
are made for
goods received.

4
Q15.37

a. b.

QUESTION TYPE OF TEST PURPOSE OF PROCEDURE

1 Both (test of  To determine that the amount

authorisation is a test of recorded in the purchases journal is
control) correct. (Accuracy)
 To determine that recorded
purchases are for goods and services
actually received. (Occurrence)
2 Both (accounting for  To determine that all receiving
sequence is a test of reports were eventually entered into
control) the system as liabilities.
(Completeness)
 To determine that acquisitions were
recorded at the proper amounts,
considering the goods received.
(Accuracy)

5
3 Substantive test of  To determine that the amount
transactions recorded is accurate, that the
classification is proper, and that the
acquisition is for goods and services
received, consistent with the best
interests of the company. (Accuracy,
Classification and Occurrence)
4 Test of control  To determine that the vendors’
invoices are approved for payment,
and that receiving reports and
purchase orders are all attached.
(Occurrence)
5 Substantive test of  To determine that postings to the
transactions cash payments journal are properly
summarised and posted to the
general ledger and are posted to the
accounts payable master file.
(Posting and summarisation)
6 Test of control  To determine that all cheque
numbers are included in the cash
payments journal, no cheque number
is included more than once and
cancelled cheques are accounted for.
(Completeness and Occurrence)
7 Substantive test of  To determine that cheques are
transactions recorded on the correct dates.
(Timing)

6
Q15.48
a.
CONTROL THAT SHOULD
HAVE PREVENTED THE
MISSTATEMEN MISSTATEMENT
T FROM OCCURRING
1 Perform independent second
counts on all merchandise.
All persons responsible for
inventory tags and
compilation of physical
inventory should be
independent of custody of
perpetual inventory records.
2 Use of pre-numbered tags
and accounting for
numerical sequence.
7
b.
SUBSTANTIVE
AUDIT PROCEDURE
THAT COULD BE USED
TO UNCOVER THE
MISSTATEMENT
Record test counts and
trace to compiled
inventory.
Account for all pre-
numbered tags during
the physical
examination and during
compilation tests.
3 Internal verification of
perpetual inventory prices.
4 Segregation of obsolete
inventory.
5 Periodic review of
reasonableness of
manufacturing overhead
rate.
6 Internal verification by
another person.
7 Keep a record of the last
shipping report number
shipped before the inventory
count.
8
Compare vendor invoice
prices to perpetual
inventory prices.
Perform net realisable
value and lower of cost
or market tests of
inventory, including
tests of the perpetual
inventory.
Test reasonableness of
manufacturing overhead
rate.
Examine vendors’
invoices in support of
prices used.
Examine bills of lading
for first shipments
recorded after the
physical inventory to
determine that they
were shipped after
year-end.
Q15.44

AUDIT a. b.

PROCEDURE TYPE OF TEST PURPOSE

1 Substantive test of To test accuracy of the client’s perpetual

transactions inventory records. (Occurrence,
Completeness and Accuracy)

2 Substantive test of To test client’s final inventory compilation.

transactions (Occurrence, Completeness, Accuracy and
Classification)

3 Substantive test of To test that final inventory was valued at

transactions its proper cost. (Accuracy)

4 Test of control To ensure that proper controls exist and

are being followed in the taking of the
physical inventory. (Occurrence,
Completeness, Accuracy and
Classification)

5 Test of control To ensure that no raw material was issued

without proper approval. (Occurrence)

9
6 Test of control or To ensure that additions recorded on the
Substantive test of finished goods perpetual records were
transactions recorded on the books as completed
production. (Accuracy and Classification)

7 Substantive test of To ensure that all inventory represented

transactions by an inventory tag actually exists.
(Occurrence)

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