AC571Week 4 Assignment

8.4Differences between the correct batch total and the batch totals obtained after processing:

(a) (b) (c) (d)$29,341.28 $29,341.28 $29,341.28$29,341.28-24,088.72 -29,431.28 -30,341.28-27,578.66$ 5,252.56 $(90.00) $(1,000.00)$ 1,762.62

Analysis of these differences:

a) The difference of $5,252.56 is not divisible evenly by 9, which rules out a transposition error. The difference affects multiple columns, which rules out a single transcription error. The difference amount is not equal to any of the entries in the first batch total calculation, which rules out an error of omission. Dividing the difference by 2 gives $2,626.28, which is one of the entries in the first calculation. More careful inspection reveals that this amount has been inadvertently subtracted from the second batch total calculation rather than added.

b) The difference of $90 is evenly divisible by 9, which suggests the possible transposition of adjoining digits in the hundredths and tenths columns. More careful inspection indicates that the amount $4,566.86 from the first calculation was incorrectly transposed to $4,656.86 in the second calculation.

c) A difference of $1,000 represents a discrepancy in only one column, the thousandths column. A possible error in transcribing one digit in that column is indicated. More careful examination reveals that the amount $2,772.42 from the first calculation was incorrectly recorded in the second calculation as $3,772.42.

D) The difference of $1,762.62 exists in multiple columns and is not divisible evenly by 9. However, this amount is equal to one of the entries in the first calculation. Inspection reveals that this item was inadvertently omitted from the second calculation.

8.11

a) Reasonableness check between fields indicating salaried and hours field.

b) All files should have header labels to identify their contents, and all programs should check these labels before processing transactions against the file.

c) A field check should be performed to check whether all characters entered in this field are numeric. There should be a prompt correction and re-processing of erroneous transactions.

d) A reasonableness test of quantity ordered relative to the product if 50 is an unusually large number of monitors to be ordered at one time. Closed-loop verification to make sure that the stock number matches the item that is ordered.

e) An uninterruptible power system should be used to provide a reserve power supply in the event of power failure.

f) Fireproof storage and maintenance of duplicate files at an off-site location.

g) A reasonableness test of quantity on hand.

h) A completeness check to check whether all required fields were filled in.

i) Check digit verification on each customer account number and a validity check for actual customers should have caught this error.

j) A size check would prevent 400 characters from being entered into a field that allows for only 5 characters.

k) Concurrent update controls protect records from errors when more than one salesman tries to update the inventory database by locking one of the users out of the database until the first salesmans update has been completed.

l) A limit check based on the original sales date.

m) Check digit verification on each customer account number and a validity check for actual customers and closed loop verification.

n) Check digit verification on each customer account number and a validity check for actual customers and closed loop verification.

o) A completeness check for all payroll checks and a hash total using employee numbers.

p) Encrypting the email containing the bid would have prevented the competitor from reading the email even if they could have intercepted the email.

q) Parity checks and echo checks will test for data transmission errors.

9.11Possible applications of computer audit software in a financial audit of fixed assets:

a) Edit the file for obvious errors or inconsistencies such as: Retired assets which have a non-zero net value. Retirement date which precedes acquisition date. Accumulated depreciation which exceeds original cost. Useful life which exceeds a reasonable limit (such as 40 years). Invalid type code, location code, or depreciation method code. Numeric fields which contain non-numeric data.

b) Recalculate year-to-date depreciation for each asset record, compare to the amount in therecord, and list any and all asset records for which a discrepancy exists.

c) Prepare a list of all assets retired during the current year for comparison to supportingdocuments.

d) Prepare a list of all assets acquired during the current year, by location, for possible physicalexamination by the auditor.

e) Select a sample of assets, stratified by net dollar value, and sorted and listed by location, forpossible physical examination by the auditor.

f) Foot the entire file to obtain file totals for total original cost, total accumulated depreciation,total current year depreciation, and total cost of current year acquisitions, for comparison toexternally maintained records.

9.12Computer audit software can help auditors examine inventory records as follows:

Audit ProcedureHow Audit Software Can Help

1. Observe the distributors physical count of inventories as of a given date, and test a sample of the distributors inventory counts for accuracy.Determine which items are to be test counted by taking a random sample of a representative number of items from the inventory file as of the date of the physical count.

2. Compare the auditors test counts to the inventory records.Arrange test counts in a format identical to the inventory file, and then match the counts.

3. Compare physical count data to the inventory records.Compare the total of the extended values of all inventory items counted, and the extended values of each inventory item counted, to the inventory records.

4.Test the mathematical accuracy of the distributors final inventory valuation.Calculate the dollar value of each inventory item counted by multiplying the quantity on hand by the cost per unit, and then verify the addition of the extended dollar values.

5. Test the pricing of the inventory by obtaining a list of costs per item from buyers, vendors, or other sources.Compare the unit costs on the auditors price test to those on the inventory file.

6.Examine inventory purchase and sale transactions on or near the year-end date to verify that all such transactions were recorded in the proper accounting period.Prepare a list of a sample of items on the inventory file for which the date of last purchase and date of the last sale are on or immediately prior to the date of the physical count.

7.Ascertain the propriety of items of inventory located in public warehouses.Prepare a list of items located in public warehouses.

8.Analyze inventory for evidence of possible obsolescence.Prepare a list of items on the inventory file for which the date of last sale indicates a lack of recent transactions.

9.Analyze inventory for evidence of possible overstocking or slow-moving items.Prepare a list of items on the inventory file for which the quantity on hand is excessive in relation to the quantity sold during the year.

10.Test the accuracy of individual data items listed in distributors inventory master file.Prepare a list of items, if any, with negative quantities or costs.