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ACCT444 Group Project Part 4 Solution

14-34 ) a., b., c., and d. PINNACLE MANUFACTURINGPart IV

# 1.

a. Key Internal Control Segregation of the purchasing, receiving, and cash disbursements functions. Independent reconciliation of the monthly bank statements.

b. Transaction Related Audit Objectives Recorded acquisitions are for goods and services actually received (occurrence). Recorded cash disbursements are for goods and services actually received (occurrence). Existing cash disbursement transactions are recorded (completeness). Recorded cash disbursement transactions are stated at the correct amounts (accuracy).

c. Test of Control Discuss segregation of duties with personnel and observe activities. Examine file of completed bank reconciliations.

d. Substantive Test of Transaction Trace entries in the acquisitions journal to related vendors' invoices, receiving reports, and purchase orders. Reconcile recorded cash disbursements with the cash disbursements on the bank statement (proof of cash disbursements).

2.

3.

Use of prenumbered Existing acquisition transactions are recorded voucher packages, (completeness). properly accounted for. Use of prenumbered checks, properly accounted for. Existing cash disbursement transactions are recorded (completeness).

Account for a sequence of voucher Trace from a file of vendors' invoices to packages. the acquisitions journal. Account for a Reconcile recorded cash disbursements sequence of checks. with the cash disbursements on the bank statement (proof of cash disbursements). Account for a sequence of receiving reports.

4.

5.

Use of prenumbered Existing acquisition transactions are recorded receiving reports, (completeness) properly accounted for.

Trace from a file of receiving reports to the acquisitions journal.

14-34 (continued)

a., b., c., and d.

# 6.

a. Key Internal Control Internal verification of document package before check preparation.

b. Transaction Related Audit Objectives


Recorded acquisitions are for goods and services actually received (occurrence). Recorded acquisitions are stated at the correct amounts (accuracy). Acquisition transactions are properly included in the master files, and are properly summarized (posting and summarization). Acquisitions are properly classified (classification). Acquisitions are recorded on the correct dates (timing).

c. Test of Control

d. Substantive Test of Transaction

Examine document Examine supporting documents for package for propriety and recalculate information on indication of internal the supporting documents. verification.

7.

Review of supporting documents and signing Recorded cash disbursements are for goods and of checks services actually received (occurrence). by an independent, authorized person. Cancellation of documents prior to signing of the check. Monthly reconciliation of the accounts payable master file with the general ledger.

Examine checks for signature.

Trace the cancelled check to the related acquisitions journal entry and examine for payee name and amount.

8.

Recorded acquisitions are for goods and services Examine indication actually received (occurrence). of cancellation. Acquisition transactions are properly included in Inquire of client the master files, and are properly summarized about monthly (posting and summarization). reconciliation procedures. Cash disbursement transactions are properly included in the master file, and are properly summarized (posting and summarization).

Examine the acquisitions journal for duplicate entries to a vendor. Foot acquisitions and cash disbursements journals and trace postings to the general ledger and accounts payable and inventory master files.

9.

14-34 (continued) e.

Acquisitions Substantive Tests of Transactions

TRANSACTION-RELATED AUDIT OBJECTIVES Occurrence

SUBSTANTIVE AUDIT PROCEDURES Compare prices on vendor invoices with approved price limits established by management. Review the acquisitions journal, general ledger, and accounts payable master file for large or unusual amounts. Audit cancelled check numbers in the cash journal to the actual cancelled check for detailed information such as name and dollar amount. Verify that any cash received should be recorded in the receipts journal that are prenumbered, which should balance to the deposit slip. All checks should have proper information as well as being endorsed. Amounts on bank deposit slips should match the amount of the cash receipt. Cash receipts should compared to daily reports for accuracy. All deposits should be reconciled against the bank statement. Verification of cash receipts and journal receipts for names and amounts. On a monthly basis, the AR account should be reconciled to match amount listed in the general ledger. All credits to the AR account should have supporting receipts. Are the reports computer generated or human operated to decrease the risk of errors? Verify that all cash receipts have been properly classified in the master file and verified internally with signature approvals. All other assets should also be classified to the proper general ledger account. Compare the bank statement that all cash receipts have been proper recorded on the date it was received. Check for date gaps in deposits. All sales transactions should be recorded on the date it was shipped.

Completeness

Accuracy

Posting and Summarization Classification

Timing

14-34 (continued)

f.

Cash Disbursements Substantive Tests of Transactions


Note: More than one audit procedure is listed for certain objectives even though the requirement is for only one procedure.

TRANSACTION-RELATED AUDIT OBJECTIVES Occurrence 14-28 Completeness Accuracy Posting and Summarization Classification Timing

SUBSTANTIVE AUDIT PROCEDURES Trace cancelled check numbers in the cash disbursements journal to related cancelled checks and examine for payee, name, and amount. Add couple more

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