SOAL SE Audit 1 UAS PDF

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AA 29 Nov 2018 The following is a systems understanding for the accounts payable and disbursements cycle for a non profit organisation. Accounts Disbursements Invoices are received in the mail. The receptionist opens the mail and any invoices are given to the financial controller. The financial cont...

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AA 29No v2018 The following is a systems understanding for the accounts payable and disbursements cycle for a non profit organisation. Accounts Payable/Cash Disbursements Invoices are received in the mail. The receptionist opens the mail and any invoices are given to the financial controller. The financial controller uses the invoices to enter accounts payable in the accounts payable module of the accounting system. After invoices are entered, they are routed to the appropriate departmental manager for approval as follows: Administration 1 Program 1 Program 2 Program 3 Fundraising

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Executive Director Program 1 Manager Program 2 Manager Program 3 Manager Development Director

The departmental manager initials the invoice to indicate approval and routes it back to the financial controller. Only approved invoices are prepared for payment. The financial controller runs an edit report and the computer-generated checks. The edit report, printed checks and invoices are reviewed by the financial controller prior to signing and posting to the general ledger. Checks are signed manually. Checks less than $1,000 are signed by the executive director. Checks greater than $1,000 are signed by the executive director and a board member. Unused checks are kept in a locked drawer in the financial controller's office. The executive assistant mails the checks. The pink copy of the check is attached to the invoice and filed. Yellow copies of the check are filed in the check box in numerical order. Required: What else do we need to understand about this cycle? What are the audit implications for the accounts payable section based on our systems understanding? (What audit assertions would we be concerned with and what would be the impact on planned audit procedures and related assertion?)

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AA 29No v2018

Each walkthrough performed below, list what cycle performed, significant account and relevant assertion, What Can Go Wrong (WCGW) and relevant control for WCGW Good Choice Sales Process – Control: 3 Way-Matched Between Customer Sales Invoice, Customers Purchase Orders and Shipping Document. Name of Interviewee (at Good Choice Company):  Lee Young, Finance Manager  John Smith, Dispatch Manager  Mary Klein, Accounts Payable Clerk NameofI nt e r v i e we r : 

Ad a m Cr ook,Fi r s ty e a ra udi t or

Da t eofI nt e r vi e w:24No v e mb e r20X2 Adam Crook: Hi Lee! How are you? Do you have time today to discuss some of the controls in Good Choice’s sales and purchases processes? I’d like to find out more about the controls for the purposes of our audit. Lee Young: Sure Adam! Come in and take a seat. What would you like to know? Adam Crook: Well I’d like to start with the manual 3-way match completed for sales. Can you talk me through the process and how this control operates? Lee Young: The details of each sales invoice are manually compared with the corresponding details from the related shipping document and customer purchase order to contract. We do this to make sure that our revenue accounts are complete, exist and are accurate and our trade receivables accounts exist and are accurate. Adam Crook: Ok, so this is a manual control. How often does the 3-way match occur? Lee Young: Well Adam, as you know we’re busy shipping out hundreds of goods every day, so this control happens many times each day. Our Dispatch Manager, John Smith, is actually responsible for carrying out the match and if the 3 documents do not agree then John flags them for the accounts payable clerk to follow up. Adam Crook: How long have John and the Accounts Payable Clerk worked for Good Choice? Lee Young: We can ask John and Mary Klein, who is the Accounts Payable Clerk, themselves if you like. Let’s go and speak to them now. Adam Crook: Hi John, how are you? wondering how long you’ve both been working at Good Choice?

Just

John Smith: Hi Adam. I’ve been here for about 4 years. I completed a similar job at another company for about 7 years before that. Would you like to see how we actually complete the 3-way match?

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AA 29No v2018 Adam Crook: Yes that would be great. Adam Crook (in dispatch area) : Ok, thanks John and Lee! Now I can see how you check the details on the invoice, the purchase order and the shipping documents to each other. John I can see that you are ticking off on each document that the details match and then stapling all the documents together for filing – fantastic! Now, what do you do if the details do not agree on the 3 documents? John Smith: If the details agree, I approve the invoices, though if there is a difference greater than 2% on the invoice, I flag them for follow up and give it to Mary, the Accounts Payable Clerk, for follow up. Adam Crook: Thanks John for your time. I appreciate it. Hi Mary, do you follow up on invoices that do not agree in the 3-way match process? And if you do, what is your process of follow up? Ma r yKl e i n( Ac c ount sPa y a bl eCl e r k ) :Hi Ad a m, y e sI d o .J o h nwi l l g i v emet h e3d o c u me n t ss t a p l e dt o g e t h e r a n dc i r c l et h ed i ff e r e n c e st h a t I n e e dt of o l l o wu p .F r o mt h e r e , I wi l l i n v e s t i g a t et h er e a s o n sf o rt h ed i ff e r e n c e , a n d t h e ns i g no fft h ei n v o i c ea n dwr i t ei na ne x p l a n a t i o no nt h ed o c u me n th o wt h ed i ff e r e n c ewa sf o l l o we du pa n d r e s o l v e d . Adam Crook: Do you mind if I inspect a document that has been flagged for follow up by John? Ma r yKl e i n:Su r en op r o b l e m,Ia c t u a l l yh a v ead o c u me n tr i g h tn o wa tmyd e s k ,h e r eI ’ l ls h o wy o u . . Adam Crook: That’s great Mary! Do you mind if I ask how long you have been following up on differences in the 3-way match process? Ma r yKl e i n: I ’ v eb e e nwo r k i n gh e r ef o r 3y e a r sn o wa n dh a v eb e e nf o l l o wi n gu po nd i ff e r e n c e sf o r 2y e a r s . Adam Crook: Thanks very much for your time, Mary! I really appreciate it! Ma r yKl e i n: Su r eAd a m, n op r o b l e m!

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AA 29No v2018

Good Choice Purchases Process – Control: 3 Way-Matched in invoice, purchase order and receiving report performed by Accounts Payable Clerk Name of Interviewee (at Good Choice Company):  Lee Young, Finance Manager  Mary Klein, Accounts Payable Clerk Nameo fI nt e r vi e we r : 

Ad a m Cr ook, Fi r s ty e a ra udi t o r

Da t eofI nt e r vi e w:24No v e mbe r20X2 Adam Crook: Hi Lee! I’m just taking a look at your purchases process and noticed some risks around trade payables – particularly whether they are accurate and actually exist. Do you have a moment to talk about this? Lee Young: Sure Adam. We actually have a control in place to cover some of those risks – every time we purchase goods our system completes an automatic 3-way match. Adam Crook: What does the system do? Lee Young: Each time we receive goods into the warehouse we enter the goods received note into the ‘Inventory Management System’ (IMS). The system is then setup to check this against the purchase order and also checks against the invoice once this is received. Provided all three documents match, everything is fine and the invoice is approved for payment. If they don’t agree, then we receive a warning from IMS and an exception report is produced. . Adam Crook: So who follows up on items listed on the exception report? Lee Young: That would be Mary Klein, our Accounts Payable Clerk. Let’s go talk to her about her process of follow up. . Lee Young: Hi Mary! I was just telling Adam here from the audit team about our purchasing 3-way match control. Can you give him some more details on the follow up you perform for items listed on the exception report generated by IMS? Ma r yKl e i n( Ac c ount sPa y a bl eCl e r k ) :Su r ec a nL e e–t a k eas e a t Ad a m.I h a v eac o p yo f a ne x c e p t i o nr e p o r t h e r et h a tt h es y s t e mp r o d u c e dl a s twe e k .It a k et h ee x c e p t i o nr e p o r tp r i n to u ta n df o l l o wu po ne v e r yi t e m.I u s u a l l yn e e dt od i s c u s st h ee x c e p t i o n swi t hs o meo t h e rc o l l e a g u e si nt h ePu r c h a s i n ga n dRe c e i v i n gDe p a r t me n t t od e t e r mi n ewh a tt h ep r o b l e mi s . On c eIh a v efi g u r e do u tt h er e a s o nf o rt h ee x c e p t i o n ,Is i g no ffo nt h e e x c e p t i o nr e p o r ta s“ f o l l o we du pa n dc l e a r e d ” .I ’ v eb e e nwo r k i n gh e r ef o r3y e a r sn o wa n dc a nu s u a l l yi d e n t i f y a n dr e s o l v et h ed i s c r e p a n c yf a i r l yq u i c k l y .I t h e ns e n dt h ee x c e p t i o nr e p o r twi t ht h es u p p o r t i n gi n v o i c e st oL e e Y o u n g , wh ot h e na p p r o v e st h e s ei n v o i c e sf o r p a y me n t Adam Crook: Sounds like a great

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AA 29No v2018 control to have in place Mary. We might have to take a look at the Inventory Management System as part of our audit work. Thanks for your help.

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