cpa audit ch7 review 3
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A control that a company can use to detect forged EDI messages is to
Acknowledge all messages initiated externally with confirming messages.
If an entity acknowledges messages initiated externally, the alleged sender will have the opportunity to recognize that it had not sent the message and will then be able to notify the entity of the potential forgery. Then, corrective action can be taken.
Each Friday afternoon, payroll checks are distributed by the shift superintendent. The plant is so large and the turnover is so great that the superintendent does not know many of the workers. Undelivered checks are returned to the payroll clerk, from whom the workers can obtain them at some later time. The payroll clerk routinely continues the payroll record for workers one week after their departure from the firm, ultimately cashes the unclaimed checks, and keeps the money. What control could be designed to prevent this misappropriation?
Require the CFO’s office to prepare checks only on the basis of supporting documentation from both the timekeeper and payroll office.
The payroll should be prepared from the time cards, which are the official records of time worked, and the authorized pay rates and deductions. After the payroll is prepared, it should be independently verified. Also, the payroll department has a recording function and should not be charged with custody of related assets (undelivered paychecks) even temporarily. Undelivered checks should be sent to the CFO for deposit in a bank account after a reasonable period of time.
What type of internal control activity would most likely addresses the completeness assertion for inventory
Receiving reports are prenumbered and periodically reconciled.
The completeness assertion states that all transactions and accounts that should be presented are included. For inventory, the assertion is that inventory quantities include all products, materials, and supplies on hand or that are owned by the entity but are in transit or stored elsewhere. The use of prenumbered receiving reports makes it possible to detect unrecorded (incomplete) inventory.
In planning to assess control risk for purchasing and disbursement procedures, would the auditor will be influenced by the strength or weakness of internal control in other areas, e.g., sales and accounts receivable.
No ---- If the auditor wishes to rely on controls, (s)he should identify controls relevant to specific financial statement assertions (such as those related to the purchases cycle) and perform tests of controls to evaluate their operating effectiveness. The auditor should obtain sufficient appropriate evidence about operating effectiveness and document the results of the audit procedures, including the conclusions if they are not clear (AU-C 330). The effectiveness of internal control in other areas of an organization, such as sales and accounts receivable, should not affect the risk assessment for purchasing and disbursement procedures. Each area should be judged separately.
An internal auditor is reviewing the company’s policy regarding investing in financial derivatives. Would the auditor would normally expect to find the following in the policy : Statement requiring board review of each transaction because of the risk involved in such transactions.
No ---- Policies are general statements that guide managers’ decision making. They are developed by the board of directors to provide guidelines for achieving objectives. Management is responsible for daily operations and should abide by the policies. Consequently, the board would not review each transaction.
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