The following is a list of misstatements that might befound in a year-end account

balance.  Foreach:<?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />

·               state the audit objective(s) that was violatedbecause of the error and why;

·               describe one control activity that might have detectedor prevented the misstatement;

·               and describe a test of balance audit procedurethat auditors might use to find it. 

Make sure you answers aresufficiently detailed to be clear about how the error violated the audit objectiveand how each internal control or testing procedure would detect the error.  Assume in all cases that the auditee’scontroller prepares regular bank reconditions.

a)             An accounting clerk omitted a check from theoutstanding checklist on the year-end bank reconciliation.  The check cleared a week after year-end.

i)              Audit objective(s) violated –

ii)            Internal control –

iii)          Test of balance –

b)            The auditee’s bank credited the auditee’s bank accountfour days before year-end with cash received from a loan the auditee hadsecured.  However, the loan was not shownas outstanding on the year-end financial statements and the cash proceeds fromthe loan were not included firm’s ending cash balance.

i)              Audit Objective(s) violated –

ii)            Internal control –

iii)          Test of balance –

c)             The auditee had factored without recourse a little over50% of their ending accounts year-end accounts receivable balance.  “Factoring” is when a firm sellsits accounts receivable to another firm, usually a financial institution.  “Without recourse” means that thepurchasing firm cannot return the receivables to the selling firm if they can’tcollect them.  Thus, full title to thereceivables has passed to the purchasing firm. However, these accounts still showed in the auditee’s ending accountsreceivable balance.  Note that auditeedoes not notify the customer who owed the account to the auditee that theiraccount has been factored and the selling firm merely forwards receipts onfactored accounts to the purchasing company. 

i)              Audit Objective(s) violated –

ii)            Internal control –

iii)          Test of balance –

d)            The auditee’s ending accounts payable balance excludeda significant number of amounts due vendors that created a materiallyunderstated in accounts payable.

i)              Audit Objective(s) violated –

ii)            Internal control –

iii)          Test of balance –

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