AC 410 Unit 7 Homework Assignment

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Problem 14-38 The following are typical questions that might appear on an internal control questionnaire for accounts payable. 1. Are monthly statements from vendors reconciled with the accounts payable listing? Monthly statements from vendors should be reconciled to the payables ledger. 2. Are vendors’ invoices matched with receiving reports before they are approved for payment? The two procedures are test controls that provides auditors the evidence to access control risk of financial statements. Required: a. Describe the purpose of each of the above internal control activities. b. Describe the manner in which each of the above procedures might be tested. c. Assuming that the operating effectiveness of each of the above procedures is found to be inadequate, describe how the auditors might alter their substantive procedures to compensate for the increased level of the risk of material misstatement. Questions Requiring Analysis 15-30
You are retained by Columbia Corporation to audit its financial statements for the fiscal year ended June 30. Your consideration of internal control indicates a fairly satisfactory condition, although there are not enough employees to permit an extensive separation of duties. The company is one of the smaller units in its industry, but it has realized net income of about $500,000 in each of the last three years. Near the end of your fieldwork, you overhear a telephone call received by the president of the company while you are discussing the audit with him. The telephone conversation indicates that on May 15 of the current year the Columbia Corporation made an accommodation endorsement of a 60-day $430,000 note issued by a major customer, Brill Corporation, to its bank. The purpose of the telephone call from Brill was to inform your client that the note had been paid at the maturity date. You had not been aware of the existence of the note before overhearing the telephone call. Questions Requiring Analysis 15-31 Valley Corporation established a stock option plan for its officers and key employees this year. Because the options granted have a higher option price than the stock’s current market price, the company has not recognized any cost for the options in the financial statements. However, a note to the financial statements includes all required disclosures. a. Do you believe that Valley’s management has appropriately accounted for the stock option plan? Explain your answer. b. What responsibility do the auditors have for the information in the notes to the financial statements?
Page 1: AC 410 Unit 7 Homework Assignment C

AC 410 Unit 7 Homework Assignment

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