One of the clients of MMM Chartered Accountants operates a restaurant. From January of the current year, the business has consistently paid its suppliers late, well in excess of the suppliers' normal credit terms. This has resulted in some suppliers requesting cash on delivery from the business. The auditor has reviewed the correspondence between the business and its bank and finds that the business has been experiencing cash flow problems for two years. Explain whether (and, if so, how) the information provided impacts on the auditor's assessment of preliminary materiality

One of the clients of MMM Chartered Accountants operates a restaurant. From January of the current year, the business has consistently paid its suppliers late, well in excess of the suppliers' normal credit terms. This has resulted in some suppliers requesting cash on delivery from the business. The auditor has reviewed the correspondence between the business and its bank and finds that the business has been experiencing cash flow problems for two years. Explain whether (and, if so, how) the information provided impacts on the auditor's assessment of preliminary materiality

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter9: Auditing The Revenue Cycle.

Section: Chapter Questions

Problem 40RQSC: Read the following scenario about Strang Corporation and identify the substantive procedures that...

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Read the following scenario about Strang Corporation and identify the substantive procedures that the CPA (Elaine Stanley) should perform to determine whether lapping exists. Do not discuss deficiencies in the system of internal control. During the year, Strang Corporation began to encounter cash flow difficulties, and a cursory review by management revealed receivable collection problems. Strang’s management engaged Elaine Stan ley, CPA, to perform a special investigation. Stanley studied the billing and collection cycle and noted the following: The accounting department employs one bookkeeper who receives and opens all incoming mail. This bookkeeper is also responsible for depositing receipts, filing daily remittance advices, recording receipts in the cash receipts journal, and posting receipts in the individual customer accounts and the general ledger accounts. There are no cash sales. The bookkeeper prepares and controls the mailing of monthly statements to customers. The concentration of functions and the receivable collection problems caused Stanley to suspect that a systematic theft of customers’ payments through a delayed posting of remittances (lapping of accounts receivable) is present.
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You're the senior auditor-in-charge of the July 31, 20x0, audit of reliable Auto Part, Inc. Your newly hired staff assistant reports to you that she is unable to complete the four-column proof of cash for the month of April 20x0, which you instructed her to do as part of the consideration of internal control over cash. Your assistant shows you the working paper that she has prepared. Your review of your assistant's work reveals that the dollar amounts of all the items in her working paper are correct. You learn that the accountant for Reliable Auto Part, Inc. makes no journal entries for the bank service charges or note collections until the month following the bank's recording of the item. In addition, Reliable's accountant makes no journal entries whatsoever for NSF checks that are redeposited and cleared. Your assistant's working paper appears below. (refer to the image; those are same, it is quite blurry) Required:Prepare a corrected four-column proof of cash in good form for…
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On February 15, 2022, Kate Collins, owner of Kate’s Cards, asks you to investigate the cash han- dling activities in her business. She believes that a new employee might be stealing funds. “I have no proof,” she says, “but I’m fairly certain that the January 31, 2022, undeposited receipts amounted to more than $12,000, although the January 31 bank reconciliation prepared by the cashier (who works in the treasurer’s department) shows only $7,238.40. Also, the January bank reconciliation doesn’t show several checks that have been outstanding for a long time. The cashier told me that these checks needn’t appear on the reconciliation because he had notified the bank to stop payment on them and he had made the necessary adjustment on the books. Does that sound reasonable to you?” At your request, Kate shows you the following (unaudited) January 31, 2022, bank reconciliation prepared by the cashier: KATE’S CARDS Bank Reconciliation January 31, 2022 Ending balance from bank statement . . . $…
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