Question

14A–1. A summary of the controls for the acquisition cycle of Keystone Computers & Networks, Inc., appears on pages 602–603. a. For the following three controls over the acquisition cycle, indicate one type of error or fraud that the control serves to prevent or detect. Organize your solution as follows: Required: LO 14-1, 3, 5, 6 Appendix 14A Problems Control Error or Fraud Controlled 1. Computer matches information from vendors’ invoice with purchase order and receiving data. 2. The computer assigns numbers to receiving reports. 3. Checks are mailed by check signer. Control Tests of Controls 1. Computer matches information from vendors’ invoice with purchase order and receiving data. 2. The computer assigns numbers to receiving reports. 3. Checks are mailed by check signer. b. For each of the controls described above, indicate how the auditors could test the control. Organize your answer as follows: 14A–2. As indicated on the control risk assessment working paper on page 602, the auditors identifi ed two weaknesses in internal control over the acquisition cycle of KCN. Describe the implications of each of the two weaknesses in terms of the type of errors or fraud that could result. 14A–3. The auditors’ working paper that relates control strengths and weaknesses to the assertions about purchases and accounts payable is presented on page 602. This working paper also presents the auditors’ planned assessed level of control risk for each of the assertions. Prepare an audit plan for tests of the controls over the acquisition cycle. (Note: You may want to use the tests of controls plan for the revenue cycle, which is on pages 496–497, as a guide.)

book reference= Principal of auditing and another assurance service

O. Ray Whittington Kurt Pany

20th edition

Answer 1

This is the first case regarding error or fraud controlled, one .this type of control will let to know whether the goods are actually supplied on the basis of initiation raised from the customers and on proper order terms, non Existanceand mismatch of which may lead to wrong supply of goods to the parties in the abscise of purchase order without consideration ofpurchase terms regarding price, repayment terms etc ,which may lead to malpractices like extension of credit term, discounted prices and sometimes even lead to missing of stock and even loss of reputation to the entity. In the second case, there will be effective control over receipt ofreports which otherwise lead to missing of reports intentionally as there is no proper check leading to even loss of turnover In the third instance, there will be more then effective control as the each document get signed but there will be other side also as the document wholly did not get into light either intentionally or not, in those cases there will be considerable loss all together as there might be possibility of using to forown the benefits