16 Aug 10-27: The following misstatements are included in the accounting records of the Joyce Manufacturin
10-27: The following misstatements are included in the accounting records of the Joyce Manufacturing Company:
- A material sale was recorded on the last day of the year even though the goods were not shipped until three days later.
- Merchandise was shipped to a customer, but no bill of lading was prepared. Because billings are prepared from bills of lading, the customer was not billed.
- The controller approved a payment to a consulting firm owned by his sister. The consulting firm did not actually perform any services for the company.
- The shipping clerk included several additional valuable items in a shipment that were not included in the customer’s order and were not invoiced to the customer. The shipping clerk has an arrangement with the customer to share the proceeds from sales of the additional items shipped.
- Cash paid on accounts receivable was stolen by the mail clerk when the mail was opened.
- A sales invoice was miscalculated by $1,000 as a result of a key-entry mistake.
- Cash paid on accounts receivable that had been prelisted by a secretary was stolen by the bookkeeper, who records cash receipts and accounts receivable. He failed to record the transactions.
Required:
- Identify whether each misstatement is an error or fraud.
- For each misstatement, list one or more procedures that could be implemented to prevent it from occurring on a continuing basis.
- For each misstatement, identify evidence the auditor can use to uncover it
10-32: Each year near the balance sheet date, when the president of Bargon Construction, Inc., takes a 3-week vacation to Hawaii, she signs several checks to pay major bills during the period she is absent. Jack Morgan, head bookkeeper for the company, uses this practice to his advantage. Morgan makes out a check to himself for the amount of a large vendor’s invoice and, because there is no acquisitions journal, he records the amount in the cash disbursements journal as an acquisition from the supplier listed on the invoice. He holds the check until several weeks into the subsequent period to make sure that the auditors do not get an opportunity to examine an electronic copy of the cancelled check. Shortly after the first of the year when the president returns, Morgan resubmits the invoice for payment and again records the check in the cash disbursements journal. At that point, he marks the invoice “paid” and files it with all other paid invoices. Morgan has been following this practice successfully for several years and feels confident that he has developed a foolproof method.
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