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Question: Susan Harris is a new assistant auditor


Susan Harris is a new assistant auditor with the public accounting firm of Sparks, Watts, and Wilcox, CPAs. On her third audit assignment, Harris examined the documentation underlying 60 disbursements as a test of controls over purchasing, receiving, vouchers payable, and cash disbursement procedures. In the process, she found five disbursements for the purchase of materials with no receiving reports in the documentation. She noted the exceptions in her working papers and called them to the attention of the senior auditor. Relying on prior experience with the client, the senior auditor disregarded Harris’s comments, and nothing further was done about the exceptions.
Subsequently, it was learned that one of the client’s purchasing agents and a member of its accounting department were engaged in a fraudulent scheme whereby they diverted the receipt of materials to a public warehouse while sending the invoices to the client. When the client discovered the fraud, the conspirators had obtained approximately $700,000—$500,000 of which was obtained after the completion of the audit.

Required:
Discuss the legal implications and liabilities to Sparks, Watts, and Wilcox as a result of the above facts.



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> The best means of verification of cash, inventory, office equipment, and nearly all other assets is a physical count of the units; only a physical count gives the auditors complete assurance as to the accuracy of the amounts listed on the balance sheet.”

> In a conversation with you, Mark Rogers, CPA, claims that both the sufficiency and the appropriateness of audit evidence are a matter of judgment in every audit. Do you agree? Explain.

> Contrast the objectives of auditing at the beginning of this century with the objectives of auditing today.

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> Distinguish among routine, non-routine, and estimation transactions. Include an example of each.

> I have finished my testing of footings of the cash journals,” said the assistant auditor to the senior auditor. “Shall I state in the working papers the periods for which I verified footings, or should I just list the totals of the receipts and disbursem

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2.99

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