Professional Documents
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SUMMARY:
Wally's Billboard & Sign Supply, Inc., was established by Walter Johnson after
gaining experience in the field of marketing while working for large corporations.The
company is peculiar for providing services concerning signs and billboards. Johnson
decided to enter the sign design market to offer businesses a service to assist in
choosing locations for their advertisements.
The company is in preparation for its growth phase and has signed up with
Taylor & Jones, LLP for over 2 years to be the assurance firm for the company. The
assurance services given to Wally's Billboard & Sign Supply, Inc. include preparing the
company for its much needed outside funding. Moreover, Bill Thompson, a senior
auditor, was delegated to do the annual audit with the said assurance firm.
Bill carried out tests of the controls of the company's transactions to ensure that
risks were fairly low. In addition, restrictions imposed by external parties on the use of
cash were ignored due to management's assurance. Wally Billboard & Sign Supply has
three separate bank accounts. First, the general account that is solely for business
expenses and receipts. Second, the payroll account, where funds are transferred twice
a month to cover payroll. Finally, the interest-bearing account ensures the availability of
extra cash in the future.
1. Why is the audit of cash an important part of the audit?
2. Bill performed tests of controls for all transaction cycles with good results.
Why is it important to also perform substantive audit procedures for the ending
cash balance even when tests of controls over transactions that affect the cash
account indicate that those controls are operating effectively?
3. According to the auditing standards, what are the necessary ingredients for
audit evidence to be considered “appropriate”?
Creating an audit work requires massive effort and expertise because you are
testing the accuracy of the information being given to you. It must be free from bias
as well. One of the essentials needed for auditors to create an effective and reliable
audit report is having enough evidence. Evidence is a very important requisite in an
audit report. According to the accounting standards, for an auditor to be able to
create an audit report with evidence, one must gather evidence that is sufficient and
reliable. Appropriateness is one of the most important elements in creating an audit
report because you would be applying this as it is important that the evidence that
would support your audit report is sufficient, which is enough, and reliable where the
quality of the evidence is important. Sufficiency and reliability is one of the key
ingredients for an audit evidence to be appropriate.
4. For each procedure listed in the audit program (schedule C 2), indicate the
primary assertion(s) targeted by the procedure.
5. For each error, concern, or adjustment you listed on the Audit Summary
(schedule C 3), briefly describe at least one additional test you could perform to
gain evidence as to whether or not the cash account is materially misstated.
C-5, C-7 & C-8 The check 5730 which came from
Woodland National Bank was not cleared
yet due the outstanding check that was
issued beforehand. This means that the
check was not yet cashed but there was a
deduction on the balance from the bank.
The auditor must investigate so that the
outstanding checks are treated legally
and properly to suffice an audit evidence.
A bank confirmation is the typical format for confirming an account balance with
the financial institutions or banks that keep the audit client's accounts. The confirmation
accepts the data provided by the client regarding deposit balances, and item number
two on the bank confirmation indicates that the bank requested confirmation regarding
loan balances, which are a component of the client's liability to the bank. Long-term and
short-term notes payable, as well as the most recent assertions, are usually the
accounts that are concerned. Confirmations can provide dependable proof that the
accounts are complete and accurate.
7. What audit procedures might you perform if you were to decide that the
risk of fraud involving the cash account was relatively high for this client?
There are three procedures that are commonly performed by auditors, involving the
cash account of the client; these are the Extended Bank Reconciliation Procedures,
Proof of Cash, and Tests for kiting. In which the auditor checks all entries in the bank
book carefully along with supporting documents such as checks, deposit slips, etc.
Deposited or withdrawn cash must be made on the same day of transaction, with no
difference in the bank book or bank statement dates.
Like many firms that use paper audit confirmations, the risk of human error is a
potential problem. In the preparations of the confirmation forms as well as the individual
assigned to complete confirmation, human errors occur. The process of confirmation
grows longer when a second confirmation needs to be corrected or followed up. Current
developments of Web-based bank confirmations that are performed by auditors for
banks are endorsed by the American Bank Association (ABA), Certified Companies
such as Confirmation.com and AuditConfirmation.com can provide services for banks.
This web-based bank confirmations simplify the audit process and to get quicker
confirmation responses from banks and other financial institutions. The web pages used
here are secure web-based services that can be used to confirm cash, term loan
balances, lines of credit balances, investment accounts, accounts receivables, accounts
payable, and much more. Confirmation’s automated process standardizes credit inquiry
requests and archives responses electronically while allowing financial institutions to
comply with regulatory standards and increase productivity. These are the advantages
of electronic confirmations:
● Saves time and reduces human error while providing a more secure process to
confirm balances.
● Allows the audit team to prepare and send confirmations during the planning
stage of the audit.
● Eliminate manual redundant processes and experience
● Controlling the process reduces the risk of confirmation fraud.
● Increase client retention
● Control the audit confirmation process that helps protect client information.
● More secure than traditional paper-based confirmations.