Question

In: Accounting

(subject name: auditing in accounting) . . . Question : As a senior auditor on the...


(subject name: auditing in accounting)
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Question :
As a senior auditor on the E&U accounting firm you are assigned the following tasks:
1) Auditing sales and accounts receivable cycle accounts
2) Auditing expenditures & accounts payable cycle accounts
3) Auditing payroll cycle accounts

for each of audited cycle mentioned above, prepare a plan that describe the following:
- main auditors concern about the misstatements risks for each transaction cycle (nature of misstatement)

note: as you answer give example

Solutions

Expert Solution

01.Auditing Sales and Accounts Receivable Cycle Accounts
While auditing sales one must be concerned about fictitious shipments, special privileges to some customers as compared to others, manipulation of sales calculations to increase sales figure, goods send on consignment recorded as sales before they are actually sold etc. One of the major concerns that is to be taken care of during the auditing of receivables is the possibility of teeming and lading i.e. where one customers payment is allocated to another customers account to hide theft or a shortfall in balances. Other factors to be considered also includes verifying the existence of accounts receivable.

02.Auditing Expenditures and Account Payable Cycle Accounts
Concerns while auditing expenses and account payable cycle includes the intentional understatement of expenses and payables, payments made to wrong vendors, and duplicate payments where one vendor is paid more than once. There are also chances of fictitious vendors and hence exist the chance of fraud by the employees or those charged with governance.

03.Auditing Payroll Cycle Accounts
One should be concerned about the possibility of payroll frauds while auditing payroll frauds. The concerns include improper salary payments by fabricating the work hours, creation of fictitious employees. Overstating expenses in-order to understate the profits of an entity is also a concern that should be taken care of.


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