Assignment:

5-14. 1. (c) Mailing monthly statements to customers with outstanding accounts will detsect invoices posted to
the wrong accounts. Customers whose accounts were misposted for goods not ordered will contest the
statements.

2. (g) Each shipping document should have a corresponding invoice when the goods are shipped. The
appropriate direction of testing is from the shipping documents to the sales invoices.

3. (f) Daily sales summaries are from the book of original entry – the sales journal. Comparing the
summaries with the total of invoices will detect failure to record all invoices.

4. (k) Comparing control total amounts posted to the accounts receivable (subsidiary) ledger with the
control total of all invoices for the same period should detect invoices not posted.

5. (i) Credit approval should be received before sales are made. Thus, shipping to customers on an
approved list should reduce the risk of sales to customers with unsatisfactory credit.

6. (b) An approved sales order should be presented to the storekeeper before release of goods from the
warehouse to prevent goods from being removed for unauthorized orders.

7. (d) Requiring shipping clerks to compare the amounts and types of goods received from the
warehouse with approved sales orders ensures that goods shipped agree with those ordered by
customers.

8. (l) Comparing sales invoices with shipping documents will ensure that each invoice is supported by a
shipment. Fictitious sales – i.e., those for which no shipment was made – should be detected.

9. (p) The total receipts credited to customer accounts in the subsidiary ledger should equal the total
receipts deposited, given that daily receipts are deposited intact.

10. (c) Checks misappropriated (stolen) prior to forwarding to the cashier will not be posted to customer
accounts (assuming that the remittance advices were stolen as well). Thus, customers will complain
when their payments fail to be reflected in the balances on the monthly statements.

11. (c) Mailing monthly statements to customers with outstanding accounts will detect receipts posted to
the wrong accounts. Customers whose accounts were misposted will contest the statements.

12. (p) If more than one customer account is credited for the same cash receipt, the error will be detected
when the total of the amounts posted to the accounts receivable ledger is compared with the total cash
receipts.

13. (s) The bank reconciliation will detect errors in recording cash receipts (and disbursements). The
balance in the ledger will not reconcile with the amount in the bank statement.

14. (p) If the checks are misappropriated (stolen) prior to deposit, the total of the amounts posted to the
accounts receivable ledger will be greater than the validated bank deposit slip.

15. (n) Invalid sales returns are prevented by requiring approval of returns by the sales department
supervisor.

6-16. 1. a. Rights and obligations

b. Unauthorized payments may be made.
 2. a. Existence of liability
b. Documents may be reused and acquisitions may be recorded twice.

3. a. Existence or occurrence
b. Unauthorized payments may be made or checks may never be mailed.

4. a. Valuation
b. Improper amounts may be paid because of math errors or incorrect discounts.

5. a. Existence or occurrence
b. Acquisitions that did not occur may be recorded.

6. a. Completeness
b. Acquisitions or payments may not be recorded.

7-12. Match objectives and procedures:

1. d
2. c
3. a

8-17.
a. b. c.
Audit Procedure to Determine
Purpose of Potential Financial Statement Existence of Material
Control Error Error

1. To assure that all note Loss of assets through payment Check note request forms for
liabilities are authorized by of excess interest rates or the proper authorization.
proper management. diversion of cash to unauthorized
persons.

2. To assure that note Improper disclosure or errors in Determine if master file is

transactions are recorded in note payable through duplication. maintained, and reconcile
full and in detail. detailed contents to control.

3. To prevent misuse of notes Misstatement of liabilities and Determine if duties are

and funds earmarked for cash. segregated. Perform all
notes. substantive procedures on
extended basis.

4. To assure that notes are not Loss of cash. Check paid notes for
paid more than once. cancellation.

5. To assure that all note-related Misstatement of notes payable. Determine if reconciliations are
transactions agree with periodically made, and verify
account balances. reconciliation.

6. To further assure that only the Misstatement of interest expense Determine if interest
proper interest amount is paid and related accrual. computations are internally
and recorded. verified.
Recompute interest on a test
basis.