Question

18-24 (Objectives 18-3 , 18-6)

The following misstatements are included in the accounting records of Westgate

Manufacturing Company. The accounts payable clerk intentionally excluded from the cash
disbursements journal seven large checks written and mailed on December 26 to prevent
cash in the bank from having a negative balance on the general ledger. They were recorded
on January 2 of the subsequent year. Acquisitions of raw materials are often not recorded
until several weeks after the goods are received because receiving personnel fail to forward
receiving reports to accounting. When pressure from a vendor’s credit department is put
on Westgate’s accounting department, it searches for the receiving report, records the
transactions in the acquisitions journal, and pays the bill. Each month, a fraudulent
receiving report is submitted to accounting by an employee in the receiving department. A
few days later, he sends Westgate an invoice for the quantity of goods ordered from a small
company he owns and operates in the evening. A check is prepared, and the amount is paid
when the receiving report and the vendor’s invoice are matched by the accounts payable
clerk. Telephone expense (account 2112) was unintentionally charged to repairs and
maintenance (account 2121). The accounts payable clerk prepares a monthly check to
Story Supply Company for the amount of an invoice owed and submits the unsigned check
to the treasurer for payment along with related supporting documents that have already
been approved. When she receives the signed check from the treasurer, she records it as a
debit to accounts payable and deposits the check in a personal bank account for a company
named Story Company. A few days later, she records the invoice in the acquisitions journal
again, resubmits the documents and a new check to the treasurer, and sends the check to
the vendor after it has been signed. The amount of a check in the cash disbursements
journal is recorded as $4,612.87 instead of $6,412.87.

Required

1. For each misstatement, identify the transaction-related audit objective that was not
met.

2. For each misstatement, state a control that should have prevented it from occurring
on a continuing basis.

3. For each misstatement, state a substantive audit procedure that could uncover it.

Expert Answer
Anonymous answered this41 answers

The following misstatements are included in the accounting records of Westgate

Manufacturing Company.

1.The account payable……………………………………………………………………

subsequent year.

Solution: -

a. Timing.
b. Software system that record data was prepared.
c. Review the check and see when it declared in the bank.

2.Acquisition of raw material…………………………………………………………. pay

the bill.

Solution: -

a. Timing
b. Receiving reports send to accounting daily. Electronically
c. Compare dates on receiving reports to dates transaction recorded in
purchase journal.

3.Each month………………………………………………………………………………
payable clerk.

Solution: -

a. Occurrence.
b. payment should be authorized by the authorized person instead of account
payable department on the basis of correct purchase order.
c. Control on cash transaction and routine checking that very cash has been
made against genuine transaction
4.Telephone expenses…………………………………………………………………
maintenance.

Solution: -

a. classification

b. Account distribution should be review before entre to the software

c. Double check the entries.

5.The account payable………………………………………to the vendor after it has

been signed.

Solution:-

a. Occurrence.
b. Documents can be canceled in such a way that the same can not be reuse
for further cash payment.
c. (1)Checks should be return to vendor after signing.

(2)Name on the checks should be strictly checked with the vendors

documents.

6.The amount of check………………………………………………………………instead

of 6412.87

Solution: -

a. Accuracy and correct valuation.

b. Important to have simultaneously computer prepare check and recording
of journal entries. And bank reconciliation statement (BRS) should be used
as a misstatement detection tool.
c. There should be comparison of amount recorded in journal entries with the
amount on checks.