Question

1. Employee A receives checks from customers and logs them into the register for check receipts (sub-ledger). S/he also posts the receipt to the relevant customer sub-ledger and is responsible for depositing the checks into bank. (Amounts from sub-ledgers are posted into the General ledger). However, in the most recent month, the employee deposited receipts from 3 customers in a personal bank account that s/he opened in a name similar to that of the Company. Which of the following control(s), if operating effectively would detect the fraud?

A. Only authorized personnel have access to the check register

B. Review of customer receivable aging analysis (AR aging)

C. Reconciling cash per GL to cash per Bank( Bank reconciliation)

2. The concept of professional skepticism requires an auditor to presume that Management is likely to misstate the financial statements.

A. True B. False

3. Under the current environment, travel is coming to a grinding halt. Consequently, last week Delta Airlines announced that it would be grounding 400 of its aircrafts indefinitely. Assume that these aircrafts were recorded as fixed assets on Delta’s balance sheet. This decision is most likely to impact the ___________ assertion related to fixed assets.

Answer 1

1. The following controls mentioned above can detect the fraud if they are operating effectively.The reason is explained below

  A. Only authorized personnel have access to the check register:

By operating the above mentioned control, we can detect the fraud as the authorized personnel may be resposible for any loss and they will not commit any fraud. Also Segregation of duties is an important component of internal control that can reduce the risk of fraud from occurring.

B. Review of customer receivable aging analysis (AR aging)

By operating the above mentioned control, we can detect the fraud as the customer account will be showing the amount of sales in our books but when we ask for balance confirmation from customers it may show different amounts compared to our books as they have already debited our account in their books with the check amount.

C. Reconciling cash per GL to cash per Bank( Bank reconciliation)

By operating the above mentioned control, we can detect the fraud as the amount as per books and bank mismatches as the check is deposited in the another bank account (employee's account).

2. The concept of professional skepticism requires an auditor to presume that Management is likely to misstate the financial statements

The above mentioned statement is true i.e., the concept of professional skepticism requires an auditor to presume that Management is likely to misstate the financial statement.

Professional skepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence.

The auditor should conduct the audit with a mind set that occurance of fraud could be possible regardless of auditor's belief about management's honesty and integrity.

3.This decision is most likely to impact the none of the assertions related to fixed assets.

Because the Balance sheet assertions are 4 viz Existence, Completeness, Valuation & Allocation and Rights & Obligations .

Grounding of its 400 aircrafts dosenot have any impact on the assets assertion because

1.Existence

The grounding of assets doesnot impact Existence as they are actually exsisting no matter they are grounded or they are in use.

2.Completeness

The grounding of assets doesnot impact Completeness as they are shown in Balance sheet.

3.Valuation & Allocation

The grounding of assets doesnot impact Valuation & Allocation as the values of aircrafts grounded doesnot changes.

4.Rights & Obligations

The grounding of assets doesnot impact Rights & Obligations as they actually belong to Delta despite of being grounded.