ACC411 Michigan State University Auditing Midterm Quiz Answers There are 5 questions in this HW, and Can you help me to finish the 10-26 and 13-26. Noticin

ACC411 Michigan State University Auditing Midterm Quiz Answers There are 5 questions in this HW, and Can you help me to finish the 10-26 and 13-26. Noticing that the 13-26 requires to be worked in an excel document. After you finish these two questions Can you also write down a paragraph to explain what you did for the questions. Midterm Quiz Points Assignment. – 50 point assignment due 4/17 at 5:00 p.m.
You are required to complete five separate homework problems with your group. Each question is worth 10 points each, for a total of 50 points. This
assignment will take quite a bit of time. It will be graded like Pinnacle though. Meaning….graded for effort, attempt and professional submission of the work. You
need not worry about accurate answers. Use it as a learning tool. Not a stressful, micro-graded assignment. When Monica and I grade it we will be looking for
level of work and sensibility of answers, not correctness.
This assignment is to be treated like a quiz. You may not ask Monica and I for assistance on an answer. You need to work hard with your group to come up with
what you feel is a sensible approach and answer to the question. You will see the official solutions when you are all done!
Please create one document for your group submission. Clearly distinguish between homework problems by clear labeling.
Please ask questions on Discussion Board, not via individual email.
Your five questions are as follows.
8-34
8-34 (OBJECTIVES 8-5, 8-8) You are evaluating audit results for assets in the audit of Roberts
Manufacturing. You set the preliminary judgment about materiality at $50,000. The account
balances, performance materiality, and estimated overstatements in the accounts
are shown next.
a. Assume you tested inventory amounts totaling $1,000,000 and found $10,000 in
overstatements. Ignoring sampling risk, what is your estimate of the total misstatement
in inventory?
b. Based on the audit of the assets accounts and ignoring other accounts, are the overall
financial statements acceptable? Explain.
c. What do you believe the auditor should do in the circumstances?
9-33
9-33 (OBJECTIVES 9-5, 9-6) Describe what is meant by acceptable audit risk. Explain why each
of the following statements is true:
a. A CPA firm should attempt to achieve the same audit risk for all audit clients when
circumstances are similar.
b. A CPA firm should decrease acceptable audit risk for audit clients when external
users rely heavily on the statements.
c. A CPA firm should decrease acceptable audit risk for audit clients when engagement
risk is high.
d. Different CPA firms should attempt to achieve reasonably similar audit risks for clients
with similar circumstances.
9-5 (OBJECTIVE 9-2) Describe the types of procedures auditors perform as part of their risk
assessment procedures.
9-6 (OBJECTIVE 9-2) In addition to inquiring of individuals among management who are involved
in financial reporting positions, such as the CFO and controller, which additional
individuals should you consider making inquiries of as part of your risk assessment procedures?
Be sure to describe how those individuals might be helpful to you in assessing risks
of material misstatement.
10-26
10-26 (OBJECTIVES 10-1, 10-4, 10-6) The following misstatements are included in the accounting
records of the Dillon Manufacturing Company:
1. Cash paid on accounts receivable was stolen by the mail clerk when the mail was
opened.
2. A sales invoice was miscalculated by $1,000 as a result of a key-entry mistake.
3. 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.
4. A material sale was recorded on the last day of the year even though the goods were
not shipped until three days later.
5. 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.
6. 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.
7. 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.
a. Identify whether each misstatement is an error or fraud.
b. For each misstatement, list one or more procedures that could be implemented to
prevent it from occurring on a continuing basis.
c. For each misstatement, identify evidence the auditor can use to uncover it.
11-27
11-27 (OBJECTIVES 11-3, 11-4) The following are misstatements that can occur in the sales
and collection cycle:
1. A customer order was filled and shipped to a former customer, which had already
filed for bankruptcy.
2. For a sale, a data entry operator erroneously failed to enter the information for the
salesman’s department. As a result, the salesman received no commission for that sale.
3. A customer number on a sales invoice was transposed and, as a result, charged to
the wrong customer. By the time the error was found, the original customer was no
longer in business.
4. A former computer operator, who is now a programmer, entered information for a
fictitious sales return and ran it through the computer system at night. When the
money came in, he took it and deposited it in his own account.
5. A nonexistent part number was included in the description of goods on a shipping
document. Therefore, no charge was made for those goods.
6. The sales manager approved the price of goods ordered by a customer, but he wrote
down the wrong price.
7. A computer operator accessed a computer-based data file for sales of the wrong week
and processed them through the system a second time.
8. Several remittance advices were batched together for inputting. The cash receipts
clerk stopped for coffee, set them on a box, and failed to deliver them to the data input
personnel.
a. Identify the transaction-related management assertion(s) in the AICPA auditing standards
(see Table 6-3 on p. 166) to which the misstatement pertains.
b. Identify one automated control that would have likely prevented each misstatement.
13-26 * Please utilize a spreadsheet for this problem. This is truly the capstone problem of this quiz and material. Plan to allocate a significant amount of time
to go back and forth with this problem in particular.
13-26 (OBJECTIVES 13-1, 13-2, 13-5) The following are audit procedures from different transaction
cycles:
1. Examine sales invoices for evidence of internal verification of prices, quantities, and
extensions.
2. Select items from the client’s perpetual inventory records and examine the items in
the company’s warehouse.
3. Use audit software to foot and cross-foot the cash disbursements journal and trace
the balance to the general ledger.
4. Examine loan agreements for key information such as interest rate, payment schedules,
collateral, and restrictive covenants to determine whether management has properly
included required disclosures in the footnotes to the financial statements.
5. Select a sample of entries in the acquisitions journal and trace each one to a related
vendor’s invoice to determine whether one exists.
6. Examine documentation for acquisition transactions before and after the balance
sheet date to determine whether they are recorded in the proper period.
7. Inquire of the credit manager whether each account receivable on the aged trial
balance is collectible.
8. Compute inventory turnover for each major product and compare with previous
years.
9. Confirm a sample of notes payable balances, interest rates, and collateral with lenders.
10. Use audit software to foot the accounts receivable trial balance and compare the balance
with the general ledger.
a. For each audit procedure, identify the transaction cycle being audited.
b. For each audit procedure, identify the type of evidence.
c. For each audit procedure, identify whether it is a test of control or a substantive test.
d. For each substantive audit procedure, identify whether it is a substantive test of transactions,
a test of details of balances, or a substantive analytical procedure.
e. For each test of control or substantive test of transactions procedure, identify the
transaction-related audit objective or objectives being satisfied.
f. For each substantive analytical procedure or test of details of balances procedure,
identify the balance-related audit objective or objectives being satisfied.

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