Question

For the audit of Storey Corp the following audit procedures are included in the audit program because of heightened risks of material misstatements due to fraud. 1. 2. 3. 4. 5. Use audit software to search cash disbursement master files for missing check numbers. Search the accounts receivable master file for account balances with missing or unusual customer numbers (e.g., "99999"). Use audit software to create a list of all credits to the repair and maintenance expense account for follow-up testing. Engage an actuarial specialist to examine management's assumptions about average length of employment and average life expectancy of retirees used in pension accounting decisions. Send confirmations to customers for large sales transactions made in the fourth quarter of the year to obtain customer responses about terms related to the transfer of title and ability to return merchandise. Use audit software to search purchase transactions to identify any with nonstandard vendor numbers or with vendor names reflecting related parties. 6. 7. Search sales databases for missing bill of lading numbers. 8. Use audit software to search for journal entries posted to the sales revenue account from a non-standard source (other than the daily sales journal). For each audit procedure: A. Describe the type of fraud risk that is likely associated with the need for this audit procedure. B. Identify the related accounts likely affected by the potential fraud misstatement (Use specific accounts) C. Identify the related audit assertions that this procedure addresses. (Refer to the Management

Answer 1

Following is the nature of fraud risk affected accounts and related audit objectives to each of the audit procedure:

Audit procedure	Fraud risk	Accounts affected	Audit objectives
1	There may be unrecorded cash disbursement transactions.	Because the transactions relate to cash disbursements,the cash account will be affected.The accounts payable account may be misstated if the disbursement is for the direct payment of an expense or is related to the purchase of assets,then expense or asset accounts will be affected.Payments on other liability accounts would impact those liability accounts would impact those liability accounts.	Existing transactions are recorded (completeness)
2	There may be fictitious accounts receivable accounts included in the master file	Accounts receivable and sales are likely to be affected by fictitious receivables.	Amounts included exist (existence)
3	Management may have manipulated key assumptions so that pension expense and pension liability amounts would be lower.	Pension expense and pension liability accounts are likely to be affected.	Amounts included are stated at the correct values (Accuracy)
4	The client may have shipped and recorded large amounts of goods close to year end to third parties who may hold the goods on consignment or who have full rights of return.These shipments were made to record a fictitious sale and related receivable.	Accounts receivable and sales and the related costs of goods sold and ending inventory would be affected by this activity.	Recorded amounts existed (occurrence)
5	Assets that were misappropriated may be concealed by recording purshase transactions using non-standard,fictitious vendor numbers.	Accounts payable would be overstated and the related asset account would be increased by the unauthorized transaction.	Recorded amounts existed (occurrence)
6	Sales may be fictitiously recorded before any goods were shipped.	Sales and accounts receivable	Recorded amounts existed (occurrence)
7	Sales may be fictitiously recorded before any goods were shipped.	Sales and accounts receivable	Recorded amounts existed (occurrence)
8	Sales may be fictitiously recorded before any goods were shipped.	Sales and accounts receivable	Recorded amounts existed (occurrence)