ACCT 460v10 Assignment 2B PDF

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ACCT 460: Principles of AuditingAssignment 2, Version BYou should plan to complete and submit Assignment 2 after Lesson 6.Complete the following questions in a single document that is compatible with MicrosoftOffice. When naming your assignment file for submission, be sure to include your last name,...

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ACCT 460: Principles of Auditing Assignment 2, Version B

You should plan to complete and submit Assignment 2 after Lesson 6.

Complete the following questions in a single document that is compatible with Microsoft Office. When naming your assignment file for submission, be sure to include your last name, the course name, and the assignment number, as follows: smith acct460 assign2B.docx Question 1: Discussion Question 8-33 on page 241 of the textbook (20 marks) 8-33 5 Recently, you had lunch with some friends at a new restaurant in your neighbour hood. The server entered his password into a computer and punched in your order. The server continued taking orders and you noticed the cook removing a small printout and placing it on the wall in front of him (presumably your order). When the food was ready, it was placed directly below your order. The server looked at the printout, put it in his pocket, and then brought your order to the table. When you finished eating, the server again entered his password and printed two copies of your bill. One copy was attached to the order slip, and the second was brought to you. You decided to pay by credit card, so two copies of the credit card authorization were brought to the table for signature. You kept one and the signed copy was returned to the server. Required: A-What internal controls (manual, computer-assisted, and automated) are present at the restaurant? There are multiple control structures used here to minimize operation risk. The first one is computer aided control for sever password. Each order is assigned to a server ID via sever password or each item is assigned to sever ID. The assumptions here is ,that the password and username are unique to each server and it been used unobtainable by any other user. That way if there were any error made during the order process can be traced back and corrected and Chef at Kitchen is notified manually and by revised order reprint so, the cost is reduced at production level. Now , when the chef at the kitchen get the computer aided print or revised print with manual information verbally it tells ,what need to be done for particular order( take out/serve at the table etc ) informing what are the stuffs needed for that order. Same process happens to bar side. Third step of this order process is sort of manual .Placing the order request receipt from server to appropriate orders (Plate/take out containers /drinks) so that server or runner takes it and delivered to table/take out person / or to table. This reduces risk of wrong delivery to wrong customers or identifying any rectifying any delivery issues.

The final process is obtaining payment from customer and completing the order.

ACCT 460v10

Assignment 2B

March 2018

The server prints two copies one for customer use and another one goes with order print out. The Customer verifies it and make payment credit card with signature on receipt/Debit with tab or pin print out /cash is balanced at cash out counter at the end of the shift deposit together with all printed receipts . B-How could the manager of the restaurant evaluate the effectiveness of the controls? The manager could do control test as well as some substantive test. First test he/she would do server shift summary reconciliation by clarifying if all receipts have server ID date and time ,No previous day receipts included in with purchase orders and no one else has same user ID and duplicate receipt. The sort of substantive test here is to check if order send to kitchen, bar and deliveries matches the correct amounts and price list and there were no price override with correct control. In order to do appropriate control test manger might do fake order to see if he/she get any whistle blowers.

C-How could the manager of the restaurant evaluate the effectiveness of the controls? As I said in section A answer ,Industry like restaurants look for waste control of the food and resources are used effectively ; this is some how related to performance quality control. Computer aided control from the point of placing the order to kitchen prepares the food is controlled effectively by computer print outs. These prints from point to point -server to kitchen specify from whom to whom the production are done for and there is no mishaps. Second is financial control that the revenue is matched at each stages of service until the deposit goes into bank via kitchen print ,bar print out and deposit slip.

ACCT 460v10

Assignment 2B

March 2018

Question 2: Discussion Question 10-27 (part b only) on page 319 of the textbook (10 marks) 10-27 1 The following are three situations, all involving private companies, in which the auditor is required to develop an audit strategy: B.This is the first year of an audit of a medium-sized company that is considering selling its business because of severe underfinancing. A review of the acquisition and payment cycle indicates that controls over cash disbursements are excellent but controls over acquisitions cannot be considered effective. The client lacks receiving reports and a policy as to the proper timing to record acquisitions. When you review the general ledger, you observe that there are many large adjusting entries to correct accounts payable. For audit 2, recommend an evidence mix for the audit of the acquisition and payment cycle, including accounts payable. Justify your answer. By looking at the situation here it looks likes only one time audit engagement and business continuity is not there ; therefore audit risk very low. However , need more substantive test with larger sample size to confirm the balances , since we know the there is big gap in control structure. In First place (1) Obtain system process operation manuals and understand process and control weakness of failures in acquisition specifically. Moderate level is needed . -Flow charting the process -Inquiry employees (Employees may lack the knowledge if there were not train for the job) -External information -Inspection of tangible assets (2) Test of control this process can be minimized as we know that we have deficiency . (3) Substantive tests need to be done with larger amount of sample size in acquisition and other can be small amount of sample in cash. (4) Multiple analytical process to obtain journal balances and transactions (5) Test of details of balances Confirmation of balances needed from multiple process to extensive and perfect as it effects the balance sheet items. -Auditor developed information of acquisition balances -Out sider information on confirming balances -Outsider/Insider confirmation -Insider  less reliable in this situation

Question 3: Discussion Question 11-35 on page 365 of the textbook (20 marks)

ACCT 460v10

Assignment 2B

March 2018

11-35 1 4 7 9 You have just completed control testing for accounts payable. You note for three items that no supporting documentation could be located and noted the exceptions. The explanation for the lack of supporting documentation was that the payments were to a related company and often documentation was lax. You discussed the issue with your senior, who asked you to confirm the details with the related company. The confirmation agreed with the amounts in your client records and you concluded that the deviations were anomalous. Your senior agreed with your conclusion and explained: “Since they are not exceptions, we do not have to adjust our audit approach. The partner has been really concerned about the time budget and we do not want to waste time on additional testing just because of poor documentation.” Required: A-Using the professional judgement framework, explain what is wrong with the alternative procedures performed. B- What is a possible explanation for the lack of documentation supporting the accounts payable with the related company? A. This is a inter related parties/company transactions, therefore confirmation from inter related parties are not reliable in this situation .What can be done is -create auditor created process to confirm evidence -Completely outsider confirming the balances -request client obtain from out sider a confirmation -Insider only -less or no reliable in this case The auditor may need to choose different sample(Intercompany transaction) size to test the pervasiveness of such occurrence and leading to materiality and see if this is above or below Bench mark materiality that were initially expected. Based on above information , senior audit staff should consult with audit committee about the time constraints and materiality of documents and come up with alternative action plan for future transaction and should realize that information gathered is not enough to establish opinion and doesn’t comply with professional standard. B-These transaction are interrelated company transactions First thing here is people are doing at arm length Family/friends/spouse etc You will expect more relaxed policies between them. This may leads to fraud and business policy collisions. Higher possibility of error in manual document handling ; Either parties may think that the other party may have good documents for transactions and can be obtain later time creating laps in document handling. Poor IT system may cause unintentional delete of transactions or lacks of frequent back up of data to secure sight . Poor control in internal control ,there same person doing transaction between both parties same bookkeeper – no segregation of duty

ACCT 460v10

Assignment 2B

March 2018

ACCT 460v10

Assignment 2B

March 2018...