Question

A CPA firm uses an audit checklist to consider potential misstatements and identify controls which might prevent or detect such errors. The engagement supervisor has instructed the audit assistant to use this checklist to evaluate a client’s internal controls. For each of the following potential errors, identify one control procedure that would most likely be effective in preventing or detecting the problem and select the appropriate control procedure from the list provided (A-L). A control procedure may be selected once, more than once, or not at all.

A. Approved sales orders are required for goods to be released from the warehouse.

B. Monthly statements are mailed to all customers with outstanding balances.

C. Shipping clerks compare goods received from the warehouse with approved sales orders.

D. Customer orders are compared with the approved customer list.

E. Supervisors approve time cards.

F. The personnel department authorizes all new hires.

G. The personnel supervisor's password is required to make rate changes.

H. Exit interviews are required by the personnel department, which forwards documents to payroll.

I. The vendor invoice, receiving report, and purchase order are matched before the voucher is approved for payment.

J. The voucher package and supporting documents are cancelled when checks are signed.

K. The purchasing department sends a "blind" copy of the purchase order (i.e., without the quantity) to the receiving clerk.

L. Total amounts posted to the accounts receivable ledger from remittance advices are compared with the validated bank deposit slip.

Errors	Controls (choose from list A-L)
1. Credit sales are made to individuals with unsatisfactory credit ratings.
2. Employees receive unauthorized rate increases.
3. Vendor invoices are paid for more goods than were received.
4. Fictitious employees are added to payroll.
5. Sales invoices for goods are posted to incorrect customer accounts.
6. Goods shipped to customers do not agree with goods ordered by customers.
7. Customer checks are misappropriated before being forwarded to the cashier for deposit.
8. The receiving clerk fails to count the goods received.
9. Customer checks are received for less than the customers' full account balances, but the customers' full account balances are credited.
10. Terminated employees remain on the payroll.

Answer 1

Answer-

Errors	Controls (choose from list A-L)
1. Credit sales are made to individuals with unsatisfactory credit ratings.	D. Customer orders are compared with the approved customer list.
2. Employees receive unauthorized rate increases.	G. The personnel supervisor's password is required to make rate changes.
3. Vendor invoices are paid for more goods than were received.	I. The vendor invoice, receiving report, and purchase order are matched before the voucher is approved for payment.
4. Fictitious employees are added to payroll.	F. The personnel department authorizes all new hires.
5. Sales invoices for goods are posted to incorrect customer accounts.	B. Monthly statements are mailed to all customers with outstanding balances.
6. Goods shipped to customers do not agree with goods ordered by customers.	C. Shipping clerks compare goods received from the warehouse with approved sales orders.
7. Customer checks are misappropriated before being forwarded to the cashier for deposit.	B. Monthly statements are mailed to all customers with outstanding balances.
8. The receiving clerk fails to count the goods received.	K. The purchasing department sends a "blind" copy of the purchase order (i.e., without the quantity) to the receiving clerk.
9. Customer checks are received for less than the customers' full account balances, but the customers' full account balances are credited.	L. Total amounts posted to the accounts receivable ledger from remittance advices are compared with the validated bank deposit slip.
10. Terminated employees remain on the payroll.	H. Exit interviews are required by the personnel department, which forwards documents to payroll.