Session IAP 11

An entity is beginning its budget cycle. Approval of the capital budget by the board of directors is the first step in the process. Until final approval, only the CEO and division vice presidents have access to it. During the multiple iterations of the capital budget, hard copies are printed and distributed to authorized persons or their administrative assistants. Which of the following is the most effective procedure by an internal auditor to gain assurance that IT personnel are not distributing the capital budget reports to unauthorized employees?

1. Interviewing IT personnel responsible for programming the budgetary applications.

2. Interviewing computer operations personnel and reviewing logs of abnormal program terminations.

3. Reviewing the log signed by those receiving the reports.

4. Interviewing all authorized personnel or their administrative assistants to determine whether they received the reports.

• 1 and 2 only.

• 3 and 4 only.

• 1 and 4 only.

• 3 only.

During the process of confirming receivables as of December 31, Year 1, a positive confirmation was returned indicating the “balance owed as of December 31 was paid on January 9, Year 2.” The internal auditor would most likely

• Determine whether a customary trade discount was taken by the customer.

• Verify that the amount was received.

• Determine whether any changes in the account occurred between January 1 and January 9, Year 2.

• Reconfirm the zero balance as of January 10, Year 2.

Bank teller supervisors might manipulate accounts using their privileged computer access codes. They could withdraw money for their own use and move money among accounts when depositors complain to the bank about errors. The audit procedure most likely to detect this is

• Reviewing transactions for employees’ accounts.

• Testing the accuracy of account posting programs.

• Reviewing transactions on privileged access codes.

• Verifying proof records for teller access codes.

A subsidiary president terminated a controller and hired a replacement without the required organizational approvals. Sales, cash flow, and profit statistics were then manipulated by the new controller and president via accelerated depreciation and sale of capital assets to obtain larger performance bonuses for the controller and the subsidiary president. An approach that might detect this fraudulent activity is

• Analysis of overall management control for segregation of duties.

• Required exit interviews for all terminated employees.

• Periodic changes of outside public accountants.

• Regular analytical review of operating divisions.

Tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about the relevant assertion regarding

• Valuation and allocation.

• Classification and understandability.

• Cutoff.

• Existence.

An internal auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control account, as of October 31. By this procedure, the auditor would be most likely to learn of which of the following?

• An account balance is past due and should be written off.

• An October check from a customer was posted in error to the account of another customer with a similar name.

• An opening balance in a subsidiary ledger account was improperly carried forward from the previous accounting period.

• An October invoice was improperly computed.

In confirming with an outside agent, such as a financial institution, that the agent is holding investment securities in the client’s name, an auditor most likely gathers evidence in support of relevant financial statement assertions about existence or occurrence and

• Rights and obligations.

• Classification and understandability.

• Completeness.

• Valuation and allocation.

For review of an accounting department’s bank reconciliation unit, which of the following is an appropriate engagement work program step for the review of canceled checks for authorized signatures?

• Examining a representative sample of signed checks and determining that the signatures are authorized in the organizational signature book.

• Completing the tests of controls over check signatures in 4 hours.

• Determining that all checks are to be signed by individuals authorized by the board.

• Comparing the check date with the first cancellation date.

An auditor selects a sample of recorded cash receipts and vouches them to accounts receivable and customer orders. This procedure is relevant to which assertion?

• Cutoff

• Existence.

• Completeness.

• Occurrence.

An audit assistant found a purchase order for a regular supplier in the amount of $5,500. The purchase order was dated after receipt of the goods. The purchasing agent had forgotten to issue the purchase order. Also, a disbursement of $450 for materials did not have a receiving report. The assistant wanted to select additional purchase orders for investigation but was unconcerned about the lack of a receiving report. The audit director should

• Agree with the assistant because the amount of the purchase order exception was considerably larger than the receiving report exception.

• Disagree with the assistant because the lack of a receiving report has a greater risk of loss associated with it.

• Disagree with the assistant because the two problems have an equal risk of loss associated with them.

• Agree with the assistant because the cash disbursement clerk had been assured by the receiving clerk that the failure to fill out a report did not happen very often.