The LP4 Seminar Assessment
Please use the following
LP4 Seminar – Part 1: https://youtu.be/ODBAm3-VZnM
LP4 Seminar – Part 2: https://youtu.be/yR8TLt3jxv8
Vendors, Theft, and Embezzlement.
The following cases are designed like the ones in the
chapter. Your assignment is to write the audit approach portion of the cases
organized around these sections.
Objective. Express the objective in terms of the facts
supposedly asserted in financial records, accounts, and statements.
Control. Write a brief explanation of desirable controls,
missing controls, and especially the kinds of “deviation” that could arise from
the situation described in the case.
Test of controls. Write some procedures for getting
evidence about existing controls, especially procedures that could discover
deviations from controls. If there are no controls to test, then there are no
procedures to perform; go to the next section. A “procedure” should instruct
someone about the source(s) of evidence to tap and the work to do.
Audit of balance: Write some procedures for getting
evidence about the existence, completeness, valuation or allocation, or rights
and obligations assertions identified in your objective section.
Discovery summary. Write a short statement about the
discovery you expect to accomplish with your procedures.
Bailey Books Inc.
is a retail distributor of upscale books, periodicals, and magazines. Bailey
has 431 retail stores throughout the southeastern states. Three full-time
purchasing agents work at corporate headquarters. They are responsible for
purchasing all inventory at the best prices available from wholesale suppliers.
They can purchase with or without obtaining competitive bids. The three
purchasing agents are R. McGuire in charge of purchasing books, M. Gaza in
charge of purchasing magazines and periodical, and L. Collins (manager of
purchasing) in charge of ordering miscellaneous items such as paper products
and store supplies.
One of the
purchasing agents is suspected of taking kickback from vendors. In return,
Bailey is thought to be paying inflated prices, which first are recorded in
inventory and then in cost of goods sold and other expense accounts as the
assets are sold or used.
The duties of
Collins, the manager in charge, do not include audit or inspection of the
performance of the other two purchasing agents. No one audits or reviews Collin’s
system is computerized and detail records are retained. An extract from these
records is in Exhibit 8.45.1.
scheme has been going on for two or three years. Bailey Books could have
overpaid by several hundred thousand dollars.
builds office buildings. The buildings generally cost between $5 million and $8
million to build, and the plumbing can cost between $300,000 and $600,000
depending on the building requirements. Therefore, Maine always sends the
plumbing work out for bid before deciding on whom to use as a subcontractor. The
company has had21 projects over the last five years with $10 million dollars in
plumbing contracts being sent out for bids.
Over the past five
years, Maine has asked for bids from these contractors; Beltran Plumbing;
Delgado Plumbing Services; Wright Contracting – Plumbing Specialists. Each
vendor has been reviewed by Maine and is on Maine’s approved list.
For each of the
following situations (each situation is independent), determine whether the
auditor should be concerned about the controls over the bidding process. If yes
what control would you recommend to
Maine to ensure a fair and honest bidding process?
Of the 21 projects sent out for bid, Wright had the
winning bid on 12 of the projects
Of the 21 projects sent out for bid Wright had the
winning bid on 12 of the projects. In each of these bidding processes, Wright’s
bid was the last bid received.
Of the 21 projects sent out for bid, each vendor had
the winning bid on 7 of the projects.
Of the 21 projects sent out for bid, Delgado was
awarded 5 contracts even though he did not have the lowest bid.
Exhibit 8.45.1 is attached