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.

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.

1. 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.