S imul a ti o n An assistant on the Caner Company audit has been working in the
ID: 2741527 • Letter: S
Question
Simulation
An assistant on the Caner Company audit has been working in the revenue cycle and has compiled a list of possible errors and fraud that may result in the misstatement of Caner Company's financial statements and a corresponding list of controls that. if properly designed and implemented, could assist in preventing or detecting the errors and fraud.
For each possible error and fraud numbered a through o, select one internal control from the following answer list that, if properly designed and implemented. most likely could assist management in preventing or detecting the errors and fraud. Each response in the list of controls may be selected once, more than once, or not at all.
Possible Errors and Fraud
Controls A. Shipping clerks compare goods received from the warehouse with the details on the shipping documents. L. Sales invoices are compared with shipping documents and approved customer orders before invoices are mailed. B. Approved sales orders are required for goods to be released from the warehouse. M. Prenumbered credit memos are used for granting credit for goods returned. C. Monthly statements are mailed to all customers with outstanding balances. N. Goods returned for credit are approved by the supervisor of the sales department. D. Shipping clerks compare goods received from the warehouse with approved sales orders. 0. Remittance advices are separated from the checks in the mailroom and forwarded to the accounting dept. E. Customer orders are compared with the inventory master file to determine whether items ordered are in stock. P. Total amounts posted to the accounts receivable ledger from remittance advices are compared with the validated bank deposit slip. F. Daily sales summaries are compared with control totals of invoices. Q. The cashier examines each check for proper endorsement G. Shipping documents are compared with sales invoices when goods are shipped. R. Validated deposit slips are compared with the cashier's daily cash summaries. H. Sales invoices are compared with the master price file. S. An employee, other than the bookkeeper, periodically prepares a bank reconcilation. I. Customer orders are compared with an approved customer list. T. Sales returns are approved by the same employee who issues receiving reports evidencing actual return of goods. J. Sales orders are prepared for each customer order K. Control amounts posted to the accounts receivable ledger are compared with control totals of invoices.Possible Errors and Fraud
a. Invoices for goods sold are posted to incorrect customer accounts. b. Goods ordered by customers are shipped, but are not billed to anyone. c. Invoices are sent for shipped goods. but are not recorded in the sales journal. d. I nvoices are sent for shipped goodsand are recorded in the salesjournal , but are not posted to any customer account. e. Credit sales are made to individuals with unsatisfactory credit ratings. f Goods are removed from inventory for unauthorized orders. g. Goods shipped to customers do not agree with goods ordered by customers. h. Invoices arc sent to allies in a fraudulent scheme and sales are recorded for fictitious transactions i.Customers' checks are received for less than the customer,;' full account balan ces, but the customers' full account balances are credited. j. Customer,;' checks are misappropriated before being forwarded to the cashier for deposit. k. Customers' checks are crediled to incorrect customer accounts. l. Different customer accounts are each credited for the same cash receipt. m. Customer checks are properly credited to customer accounts and areproperly deposited, but error,; are made in recording receipts in the cash receiptsjournal. n.Customer checks are misappropriated after being forwarded to thecashier for deposit. o. Invalid transactions granting credit for salesreturns are recorded .Explanation / Answer
Possible Errors and Fraud Controls a. Invoices for goods sold are posted to incorrect customer accounts. Monthly statements are mailed to all customers with outstanding balances. b. Goods ordered by customers are shipped, but are not billed to anyone Shipping documents are compared with sales invoices when goods are shipped. c. Invoices are sent for shipped goods. but are not recorded in the sales journal. Daily sales summaries are compared with control totals of invoices. d. I nvoices are sent for shipped goodsand are recorded in the salesjournal , but are not posted to any customer account Control amounts posted to the accounts receivable ledger are compared with control totals of invoices. e. Credit sales are made to individuals with unsatisfactory credit ratings. Approved sales orders are required for goods to be released from the warehouse. f Goods are removed from inventory for unauthorized orders. Shipping clerks compare goods received from the warehouse with approved sales orders. g. Goods shipped to customers do not agree with goods ordered by customers. Goods returned for credit are approved by the supervisor of the sales department. h. Invoices arc sent to allies in a fraudulent scheme and sales are recorded for fictitious transactions Sales invoices are compared with shipping documents and approved customer orders before invoices are mailed. i.Customers' checks are received for less than the customer,;' full account balan ces, but the customers' full account balances are credited. Control amounts posted to the accounts receivable ledger are compared with control totals of invoices. j. Customer,;' checks are misappropriated before being forwarded to the cashier for deposit. total amounts posted to the accounts receivable ledger from remittance advices are compared with the validated bank deposit slip. k. Customers' checks are crediled to incorrect customer accounts. The cashier examines each check for proper endorsement l. Different customer accounts are each credited for the same cash receipt. The cashier examines each check for proper endorsement m. Customer checks are properly credited to customer accounts and areproperly deposited, but error,; are made in recording receipts in the cash receiptsjournal. validated deposit slips are compared with the cashier's daily cash summaries. n.Customer checks are misappropriated after being forwarded to thecashier for deposit. An employee, other than the bookkeeper, periodically prepares a bank reconcilation. o. Invalid transactions granting credit for salesreturns are recorded . Remittance advices are separated from the checks in the mailroom and forwarded to the accounting dept.
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