WRITING ASSIGNMENT 2

For this writing assignment, consider the following auditing scenario and answer the questions. Note that there is an Excel workbook with 2 sheets containing the partial cash disbursements journal and the summary of your inspection of payables support documents.
Answer the questions as if you are preparing a document for your audit in charge. Use complete sentences (or bulleted lists where appropriate) and be sure to support all conclusions by showing work where appropriate.

DUE IN CLASS ON DECEMBER 10th, 2014. LATE ASSIGNMENTS ARE NOT ACCEPTED. BE SURE TO WORD PROCESS THIS ASSIGNMENT. YOU MAY WORK WITH A PARTNER IF YOU CHOSE.

You are auditing Broome Brooms Inc. and working in the acquisition and disbursement cycle. We will consider a particular controls test and a particular substantive test.

CONTROLS

One of the client’s controls is to require a purchasing agent’s signature on all purchase orders before the warehouse will accept delivery of goods requested on the purchase orders. In other words, the purchasing agent’s signature indicates that the purchase has been approved. What this means is that there should be a purchasing agent’s signature on all purchase orders matched to receiving documents. To test this control, you decide to pull a sample of purchase orders with corresponding receiving documents and inspect to discover whether a signature exists on the purchase order per the control. If there is no signature, you have a deviation. As part of your planning, you decided to accept a 5% probability of relying on the control when you should not. Additionally, your experience with this client tells you that 4% of the purchase orders are likely not to have the signature. Furthermore, you have decided that even if up to 9% of the purchase orders are without signature, you will consider the control effective. In performing your test, you find that 7 of the purchase orders in your sample do not have the signature.

What is the sampling rate of deviation?
Would you consider the control effective (please show your work)?

SUBSTANTIVE TEST

In the accounts payables area, your client maintains separate files for open purchase orders, receiving documents, and invoices from vendors. They also maintain a completed payables file where all of these documents, along with check stubs (records of checks used to pay the invoice in question) are all gather together and filed.