CS 111 Homework 4 Deadline 11:59 PM On Friday

Cs 111 Homework 4 P 1cs 111 Homework 4deadline1159 Pm On Friday

Analyze internal control weaknesses and audit findings related to cash disbursements, including identifying deviations, assessing audit implications, proposing follow-up procedures, and internal control recommendations based on specific transaction exceptions.

Paper For Above instruction

The audit of cash disbursements is a crucial component of internal control assessment in ensuring the accuracy and integrity of financial statements. In the scenario presented, the auditor has conducted tests on 25 transactions within the Jay Klein Company's processes, revealing several notable exceptions. The analysis of these exceptions involves classifying each as a control test deviation, a monetary misstatement, or both; evaluating the transaction-related audit objectives compromised; determining their audit significance; proposing follow-up procedures; considering impacts on overall audit procedures; and recommending internal controls to prevent such issues.

1. Duplicate Invoice Payment: The second payment supported by a duplicate invoice marked 'paid' indicates a failure in controls over invoice approval and payment authorization. This exception is both a control test deviation and a potential monetary misstatement because it suggests possible overpayment. The transaction-related audit objective likely not met is the occurrence and cutoff objectives, as payments were made more than once for the same invoice. Its audit importance lies in the risk of financial loss, requiring further investigation into whether other payments might similarly be duplicated. Follow-up includes verifying invoice approval processes, reviewing payment approvals, and checking for other duplicate payments to assess potential overcharges. If uncorrected, this deviation could lead to overstated expenses and distorted financial records. Internal controls such as invoice pre-approval, duplication checks, and segregation of duties over payment processing should have prevented this.

2. Misclassified Acquisition Journal Items: Errors in classifying transactions suggest weaknesses in the recording and review procedures. These are control test deviations that could affect monetary accuracy if misclassified items lead to incorrect financial statement line items. The related audit objective not met is the classification objective, which impacts the accuracy of financial reporting and internal reporting controls. Its significance is moderate but warrants correction to ensure statement reliability. Follow-up involves reviewing original supporting documents, confirming correct classification, and testing additional transactions for similar errors. Proper internal controls include detailed invoice classification policies and managerial review of journal entries.

3. Controller's Missing Initials on Invoices: Missing initials are a control test deviation indicating lapses in authorization and review procedures. Although no dollar misstatements are immediately evident, the lack of controller initials could compromise audit trail integrity. The audit objective not met is authorization, and its importance lies in preventing unauthorized or unreviewed transactions. Follow-up includes examining the initialing process, retracing supporting documentation, and testing whether other transactions lack proper authorization. Implementing mandatory initials or electronic approval systems would strengthen internal control.

4. Delayed Recording of Receiving Reports: Recording delays of at least two weeks present a control test deviation impacting completeness and cutoff objectives. Such delays can distort inventory or expense recognition, affecting accuracy. Their audit importance involves the potential for understated liabilities or overstated assets. Follow-up procedures include confirming receipt dates, reviewing procedures for timely recording, and testing additional entries for similar delays. Strengthening internal controls, such as automated data entry alerts and supervisory review, can mitigate these delays.

5. Missing Receipt Reports, Invoice Extension Errors: Missing reports and invoice errors point to weak controls over receivables documentation and invoice verification. These are both control test deviations and potential monetary misstatements, especially if errors lead to expense overstating or understated receivables. The relevant audit objectives are completeness and valuation. Follow-up includes verifying supporting documents, recalculating invoice extensions, and testing additional transactions for similar discrepancies. Internal controls should include systematic reconciliation of receipt reports and vendor invoices, along with periodic review of supporting documentation.

6. Discrepancy in Check Amounts: A check issued for less than the invoice amount indicates a control failure in disbursing correct payments, affecting the accuracy of cash disbursement and completeness objectives. The audit importance is high because it directly impacts financial accuracy. Follow-up involves verifying supporting documentation, recalculating invoice totals, and reviewing other disbursements for similar errors. Internal controls such as automated matching of checks to invoices and managerial approval processes are essential to prevent such errors.

7. Missing Voided Checks: Absence of a voided check recording reflects control weaknesses in cash disbursement reconciliation. This signals both control test deviation and potential monetary misstatement if unrecorded voids lead to unauthorized payments. The relevant audit objective is the existence and completeness of disbursements. Follow-up includes cross-referencing bank statements with the disbursements journal, reviewing void procedures, and testing for unrecorded voids. Internal controls like requiring signed authorization for voids and routine reconciliation of bank statements would help prevent such issues.

Overall, these exceptions highlight areas where internal controls failed to function effectively, leading to risks of financial inaccuracies and possible fraud. These issues stress the importance of robust procedures such as segregation of duties, proper authorization, timely recording, systematic reconciliation, and supervisory review. Ensuring such controls are in place and operational reduces the risk of errors, misstatements, and fraudulent activities, thereby strengthening the overall reliability of financial statements and internal processes. Continuous monitoring, employee training, and periodic audits are critical to maintaining effective controls and promptly addressing any deficiencies evident from transaction testing.

References

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