Question

LO 10-6, 10 10-36 Based on an assessment of audit risk, the auditors are concerned with the following two risks: 1. The risk that that the client might be making duplicate payments to vendors. 2. The risk that the client's accounting clerk might be making unauthorized payments to himself. a. Assuming that the client has a manual accounting system, describe how the auditors can design a test to identify the duplicate payments and unauthorized payments. b. Assuming that the client has an IT accounting system, describe how the anditors might use data analytic software to design a test to identify the duplicate payments and the unauthor ized payments c. Describe the advantages of using data analytics software to identify unusual transactions or entries Required 10-37. You are the auditor in charge of the audit of Steffens Corporation. In the audit of invest- ments, you have just been given the following list of securities held by Steffens Corporation at December 31, 20x3. LO 10-8, 10 STEFFENS CORPORATION Schedule of Marketable Securities December 31, 20x3 Market Value December 31 $599,100 216.500 10,000 shares of Microsoft Corp. 6,000 shares of General Motors Corp. 8,000 shares of Beta Corporation 400 Holloway Lodging Corp. 7.5% Convertible Bonds (not publicly traded) 555,000 Identify the potential audit problems that may be indicated by the schedule. Tovalue the shares of Beta Corporation, management has employed a securities valuation firm Explain the audit considerations involved in auditing the value developed by the valuation firm Required: a b Objective Questions 10-38 Multiple Choice Questions Select the best answer for each of the following situations and give reasons for your choice. a Which of the following controls would most likely reduce the risk of diversion of cus- tomer receipts by a client's employees? LO 10-3 ) A bank lockbox system. (2) Prenumbered remittance advices. (3) Monthly bank reconciliations. (4) Daily deposit of cash receipts. b. To provide assurance that each voucher is submitted and paid only once, the auditors most likely would examine a sample of paid vouchers and determine whether each voucher is: () Supported by a vendor's invoice. LO 10-3 (2) Stamped "paid" by the check signer. (3) Prenumbered and accounted for. (4) Approved for authorized purchases. In testing controls over cash disbursements, the auditors most likely would determine that the person who signs checks also: LO 10-5 c. () Reviews the monthly bank reconciliation. (2) Returns the checks to accounts payable. (3) Is denied access to the supporting documents (4) Is responsible for mailing the checks LO 10-6 d. To gather evidence regarding the balance per bank in a bank reconciliation, the auditors wOuld examine any of the following except: () Cutoff bank statement. Year-end bank statement. (2) (3) Bank confirmation (4) General ledger

Answer 1

Ans 10-36

Part a. In a manual accounting system:

Duplicate Payments to Vendors:

The auditors can ask for Balance Confirmations from vendors and on the basis of that determine the reasons for differences between Company and their numbers. Same can be checked along side Bank Reconciliation Statement, in congruence with checks not presented for payments and other cases. Cash Transactions if any should be fully scrutinzed. They can also ask for Creditors' Ageing along side to determine the payout routine.

Embezzlement by Accounting Clerk:

The payments need to be traced to source documents this way the payments not backed by source documents need to be discussed with authorizing personnel and any unauthorized payments need be scrutinized 100%.

Part b. In an IT System Environment:

Duplicate Payments to Vendors:

After identification of transactions with potential of duplicate payments through Data Analytics Software, one should examine them with available support documentation. Through this, any questionable transactions can be confirmed if duplicate or not.

Embezzlement by Accounting Clerk:

Examining Source documents for payments is a test that is most reliable even in IT System Environment. Any unauthorized payments or unusual nature items need be scrutinized after their identification through software.

Part c. Advantages of Analytics Software:

• Same leads to very fast and accurate inspection into the nature of transactions as compared to manual scrutiny.
• It is very beneficial as can be integrated to Accounting System and thus various type of analysis in various dimensions can be made very fast as data gets retrieved directly into software.
• It leads to better in depth analysis and is less time consuming as compared to manual scrutiny for same volume of transactions and is very beneficial where high volume of transactions are in existence.