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Auditing Assignment Seven Busi 3343

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Auditing Assignment Seven Busi 3343

Question 1 (5 marks)

You are the auditor of Brody Grass Inc. The CEO expressed a concern that the audit fees for the year were very high. You then explained that this is largely due to poor internal controls in the cash and transaction cycle and that the audit fees could decrease if better controls were in place.

Provide 5 examples of general cash account controls that Brody Grass Inc. could implement.

Question 2 (6 Marks)

You are the auditor for GreenAcres, a non-profit home for homeless elderly. GreenAcres has a December 31 year end. It receives government funding, and also relies upon donations for revenue. GreenAcres has a major funding drive in November, when it collects pledges by means of activities at a garage sale, a walkathon, and fall bake sale events in the community.

During late February you had a meeting with Ellen Famous, the President of GreenAcres, at the organization’s premises. Ellen reviews and approves bank statements and is the second and final cheque signer. Two other accounting staff have the following responsibilities:

  • Paul approves pledge write-offs (which normally average about 15%), opens the mail, endorses cheques received in the mail, prepares and delivers bank deposits, and posts transactions into the accounting system.
  • Diana, a retired bookkeeper, volunteers about 10 hours per week to reconcile the bank account, review journal entries posted to the general ledger, and prepare payroll and accounts payable transactions for processing.

Ellen normally reviews pledge write-offs, but was very busy in February, so she took a look while you were there. To her surprise, she found that about 40% of the pledges had been written off. She asked Diana to investigate, and Diana found that most of the write-offs had actually been paid.

Required:

  1. A) What are possible causes of the inconsistency with the pledge write-offs?
  2. B) What are the weaknesses in internal control that could allow the excess write-offs to occur? Provide recommendations for improvement.
  3. C) Identify audit procedures that you would complete to quantify any potential misstatement with respect to the pledges receivable balance as at December 31.

Question 3 (6 marks)

Following are situations that an auditor might find by means of tests of controls or tests of details of cash balances for a company with a December year end.

  1. A) The accountant did not record or deposit a cash receipt for $50,000 that was received on December 28. Cash is prelisted by the receptionist.
  1. B) Cheques prepared up to January 6 were dated December 31 and recorded in the cash disbursements journal.
  1. C) A cheque was issued for office supplies that were never received by the client.

Required:

List a substantive audit procedure that could uncover each of the preceding situations.

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Auditing Assignment Seven Busi 3343

Question 1 (5 marks)

You are the auditor of Brody Grass Inc. The CEO expressed a concern that the audit fees for the year were very high. You then explained that this is largely due to poor internal controls in the cash and transaction cycle and that the audit fees could decrease if better controls were in place.

Provide 5 examples of general cash account controls that Brody Grass Inc. could implement.

Question 2 (6 Marks)

You are the auditor for GreenAcres, a non-profit home for homeless elderly. GreenAcres has a December 31 year end. It receives government funding, and also relies upon donations for revenue. GreenAcres has a major funding drive in November, when it collects pledges by means of activities at a garage sale, a walkathon, and fall bake sale events in the community.

During late February you had a meeting with Ellen Famous, the President of GreenAcres, at the organization’s premises. Ellen reviews and approves bank statements and is the second and final cheque signer. Two other accounting staff have the following responsibilities:

  • Paul approves pledge write-offs (which normally average about 15%), opens the mail, endorses cheques received in the mail, prepares and delivers bank deposits, and posts transactions into the accounting system.
  • Diana, a retired bookkeeper, volunteers about 10 hours per week to reconcile the bank account, review journal entries posted to the general ledger, and prepare payroll and accounts payable transactions for processing.

Ellen normally reviews pledge write-offs, but was very busy in February, so she took a look while you were there. To her surprise, she found that about 40% of the pledges had been written off. She asked Diana to investigate, and Diana found that most of the write-offs had actually been paid.

Required:

  1. A) What are possible causes of the inconsistency with the pledge write-offs?
  2. B) What are the weaknesses in internal control that could allow the excess write-offs to occur? Provide recommendations for improvement.
  3. C) Identify audit procedures that you would complete to quantify any potential misstatement with respect to the pledges receivable balance as at December 31.

Question 3 (6 marks)

Following are situations that an auditor might find by means of tests of controls or tests of details of cash balances for a company with a December year end.

  1. A) The accountant did not record or deposit a cash receipt for $50,000 that was received on December 28. Cash is prelisted by the receptionist.
  1. B) Cheques prepared up to January 6 were dated December 31 and recorded in the cash disbursements journal.
  1. C) A cheque was issued for office supplies that were never received by the client.

Required:

List a substantive audit procedure that could uncover each of the preceding situations.

 

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