Question

Using the computer to discover international financial misstatements in transactions and account balances. AMI international is a large office products company. Headquarters management imposed pressure on operating division managers to meet profit forecasts. The division managers met these profit goals using several accounting manipulations involving the record-keeping system that maintained all transactions and account balances on computer files. Employees who operated the computer accounting system were aware of the modifications of policy the managers ordered to accomplish the financial statement manipulations. The management and employees carried out these activities:

1. Deferred inventory write-downs for obsolete and damaged goods.

2. Kept open the sales entry system after the quarterly and annual cutoff dates, recording sales of goods shipped after the cutoff dates.

3. Recorded as sales transactions that had been as leases of office equipment.

4. Recorded shipments to branch offices as sales.

5. Postponed recording vendors invoices for parts and services until later, but the actual invoice date was faithfully entered according to accounting policy. REQUIRED: Describe one or more procedures that could be performed with CAAT to detect signs of each of these transactions manipulations. Limit your answer to the actual work accomplished by the computer software.

Answer 1

Answer :

1.         Inventory write downs for obsolete and damaged goods were deferred.

Scanning. Scan inventory records on the date of issue filed and select old last issue dates for further investigation regarding need to write down or write off.

2.         The sales entry system was kept open after the quarterly and annual cutoff dates, recording sales of goods shipped after the cutoff dates.

Analytical procedures. Summarize and resequence sales data by shipment date or shipping document number to detect next period shipments recorded in the accounting period under audit and then perform the next procedure.

Confirmation. Select and print information about these customers regarding accounts receivable confirmation at the cutoff date.

3.         Transactions coded as leases of office equipment were recorded as sales.

Scanning. Scan the sales file on the transaction code field to detect the leased equipment recorded as sales (then examine the underlying source documentation).

4.         Shipments to branch offices were recorded as sales.

Scanning. Scan the customer name or code field for comparison to known names or codes used for branch offices (select matches for more document examination).

Analytical procedures. To accomplish the same purpose, compare data on separate files—branch name and code file—to sales customer name and code fields.

5.         Vendors’ invoices for parts and services were not recorded until later, but the actual invoice date was faithfully entered according to accounting policy.

Document examination (limited). Enter balances from period end vendor statements and compare to the company’s accounts payable records.

Analytical procedures. Summarize the subsequent period accounts payable entries on the invoice date field to find the total of invoices recorded late.