In testing cash disbursements for the Jay Klein Company, you obtained an understanding of internal control. The controls are reasonably good, and no unusual audit problems arose in previous years.

Although there are not many individuals in the accounting department, there is a reasonable separation of duties in the organization. There is a separate purchasing agent who is responsible for ordering goods and a separate receiving department that counts the goods when they are received and prepares receiving reports. There is a separation of duties between recording acquisitions and cash disbursements, and all information is recorded in the two journals independently. The controller reviews all supporting documents before signing the checks, and he immediately mails the checks to the vendors. Check copies are used for subsequent recording.

All aspects of internal control seem satisfactory to you, and you perform minimum tests of 25 transactions as a means of assessing control risk. In your tests, you discover the following exceptions:

1. One invoice was paid twice. The second payment was supported by a duplicate copy of the invoice. Both copies of the invoice were marked “paid.”
2. Two items in the acquisitions journal were misclassified.
3. Three invoices were not initialed by the controller, but there were no dollar misstatements evident in the transactions.
4. Five receiving reports were recorded in the acquisitions journal at least 2 weeks later than their date on the receiving report.
5. Two receiving reports for vendors’ invoices were missing from the transaction packets. One vendor’s invoice had an extension error, and the invoice was initialed that the amount had been checked.
6. One check amount in the cash disbursements journal was for $100 less than the amount stated on the vendor’s invoice.
7. One voided check was missing.
   Required
   a.Identify whether each of 1 through 7 is a control test deviation, a monetary misstatement, or both.
   b.For each exception, identify which transaction-related audit objective was not met.
   c.What is the audit importance of each of these exceptions?
   d.What follow-up procedures would you use to determine more about the nature of each exception?
   e.How would each of these exceptions affect rest of the your audit? Be specific.
   f.Identify internal controls that should have prevented each misstatement.

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Gloria is a recent college graduate and a single mom to 16-year-old Gary. Gloria and Gary used to be close. But recently, Gloria has noticed that Gary is only focused on what his friends think about him. Gary recently snuck out of his bedroom window and went to a party when he was supposed to be studying for a big exam. Gloria caught him coming home and smelled alcohol on his breath and marijuana on his clothes. Gloria is shocked and appalled by her son’s recent behavior and grounded him for two weeks.

Gloria comes to you because she needs some advice on how to handle her son’s poor choices. Using what you have learned about the adolescent brain and social development, answer the questions below to help Gloria understand why her son is making such poor choices, and pose some recommendations to help her solve her problem:

1. What happens to teen brains that make it difficult for someone like Gary to weigh risk and reward?
2. Why may Gary value his peers more than his mom?
3. What specific strategies or advice would you recommend that Gloria can do to help her son to make better decision
4. Place yourself in Gloria’s shoes; how do you think Gloria is feeling? How can understanding her feelings help you offer constructive advice?

Sample Solution

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