Accounting Week 8 Homework Questions 2015

Week 8 Homework Questions

1)
For each of the following
activities in a typical sales cycle, describe the goal of the activities, the
typical processes involved, and the documents involved. Also, find an example from the Tom’s Trailer
Sales case of how they handle and document these activities. Fill in the following table with your
answers.

Activity

Goal

Processes and Documents

Tom’s Example

Take
an order

Approve
Credit

Fill
Order

Ship
order

Bill

Collect

2)
Review the description of
Southwest’s Billing, Collections Management and Write-offs, Sales Returns, and
Cash Receipts processes. Identify four
transaction processing control weaknesses somewhere within the four steps
identified above. I don’t care whether
you have one for each step or not, just list the four transaction processing
control weakness you believe are the more serious somewhere within the four
steps. For each transaction processing
control weakness:
a)
describe the control weakness;
b)
describe how the weakness could
create a material error in the financial statements including which accounts
and of three management assertions (i.e., completeness, occurrence, and
accuracy) might be affected; and
c)
make a recommendation on how
their controls could be improved to mitigate this weakness.
Use the following table for your
answers. I have included four times the
number of rows you will need since you only need to identify four weaknesses
anywhere in the four processes.

Potential Control Weakness

Potential Misstatement

Recommended Correction

Billing

Collections Management and
Write-Offs

Potential Control Weakness

Potential Misstatement

Recommended Correction

Sales Returns

Potential Control Weakness

Potential Misstatement

Recommended Correction

Cash Receipts

Potential Control Weakness

Potential Misstatement

Recommended Correction

Describe the steps auditors use
in attribute sampling (i.e., statistical) and discuss the activities that go on
in each step and why they are important to the sampling process. Use the following example to provide examples
for your explanations.
The context for this question is an auditor
determining how many items to test from a population and how to test them. Let me set a simple example to illustrate all
the answers to question. As the auditor,
you have selected the following as a key control to test in the purchases and
payment processes of the auditee.

The auditee’s accounting department staff
are to compare every invoice received from vendors to packing slips and purchase
orders to make sure the terms, quantities, and prices are the same before
processing the invoice for payment. The
clerk that does the comparison is supposed to staple the documents (packing
slip, purchase order, and invoice) together with the invoice on top and then
initial the face of the invoice.

You cannot afford to review every invoice
to make sure the purchase order and receiving reports are attached and that the
accounting clerk initialed the invoice to insure that the comparison was
done. However, you are auditing the
ending purchases balance and so every invoice is part of the population of
invoices that make up the ending purchases balance. Thus, you need to select a subset or sample
of invoices to test.

a)
Determine objectives of the test. Include a comment on the role audit
objectives play in this step.

b)
Define attributes and exception
conditions.

c)
Define population

d)
Define the sampling unit

e)
Determine sample size, which
includes determining specifying the TER, ARO, and EPER.

f)
Select sample items. Also, differentiate between selection methods
(i.e., random, systematic, and haphazard).

g)
Perform audit procedures

h)
Generalize from the sample to
the population.

i)
Analyze exceptions

j)
Decide the acceptability of the
population.

 

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