Reference no: EM131321561

The following misstatements are sometimes found in the sales and collection cycle's account balances:

1. The accounts receivable trial balance total does not equal the amount in the general ledger.

2. Several accounts receivable in the accounts receivable master file are not included in the aged trial balance.

3. One account receivable in the accounts receivable master file is included on the aged trial balance twice.

4. A shipment made in the subsequent period is recorded as a current period sale.

5. The allowance for uncollectible accounts is inadequate because of the client's failure to reflect depressed economic conditions in the allowance.

6. Several accounts receivable are in dispute as a result of claims of defective merchandise.

7. The pledging of accounts receivable to the bank for a loan is not disclosed in the financial statements.

8. Goods shipped and included in the current period sales were returned in the subsequent period.

9. Long-term interest-bearing notes receivable from affiliated companies are included in accounts receivable.

Required

a. For each misstatement, identify the balance-related audit objective to which it pertains.

b. For each misstatement, list an internal control that should prevent it.

c. For each misstatement, list one test of details of balances audit procedure that the auditor can use to detect it.

(2)  a. In each of the following independent problems, design an unbiased random sampling plan, using an electronic spreadsheet or a random number generator program. The plan should include defining the sampling unit and establishing a numbering system for the population. After the plan has been designed, select the sample using the computer. Assume that the sample size is 75 for each of (1) through (4).

(1) Prenumbered sales invoices in a sales journal where the lowest invoice number is 1 and the highest is 8274.

(2) Prenumbered bills of lading where the lowest document number is 18221 and the highest is 29427.

(3) Accounts receivable on 20 pages with 50 lines per page except the last page, which has only 29 full lines. Each line has a customer name and an amount receivable.

(4) Prenumbered invoices in a sales journal where each month starts over with number 1. (Invoices for each month are designated by the month and document number.) There is a maximum of 25 pages per month with a total of 215 pages for the year. All pages have 100 invoices except for the last page for each month.

b. Using systematic sampling, select the first five sample items for populations (1) through (3) from part a, using the random starting points shown. Recall that the sample size is 75 in each case.
(1) Invoice #39
(2) Bill of lading #18259