ASSIGNMENT
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 advice 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.
You are doing the audit of Phelps College, a private school with approximately 2,500 students. With your firm’s consultation, they have instituted an IT system that separates the responsibilities of the computer operator, systems analyst, librarian, programmer, and data control group by having a different person do each function. Now, a budget reduction is necessary and one of the five people must be laid off. You are requested to give the college advice as to how the five functions could be done with reduced personnel and minimal negative effects on internal control. The amount of time the functions take is not relevant because all five people also do non-accounting functions.
a. Divide the five functions among four people in such a way as to maintain the best possible control system.
b. Assume that economic times become worse for Phelps College and it must terminate employment of another person. Divide the five functions among three people in such a way as to maintain the best possible internal control. Again, the amount of time each function takes should not be a consideration in your decision.
c. Assume that economic times become so severe for Phelps College that only two people can be employed to do IT functions. Divide the five functions between two people in such a way as to maintain the best possible control system.
d. If the five functions were done by one person, will internal controls be so inadequate
that an audit cannot be done? Discuss.
