Question 1- Henry Mills is responsible for preparing checks, recording cash disbursements, and preparing bank reconciliations for Signet Corporation. While reconciling the October bank statement, Mills noticed that several checks totaling $937 had been outstanding for more than one year. Concluding that these checks would never be presented for payments, Mills prepared a check for $937 payable to himself, forged the treasurer's signature, and cashed the check. Mills made no entry in the accounts for this disbursement and attempted to conceal the theft by destroying the forged check and omitting the long-outstanding checks from subsequent bank reconciliations.

Required:

1. Identify the weaknesses in Signet Corporation's internal control.

2. Explain several audit procedures that might disclose the fraudulent disbursement.

Question 2 - 1. Following are typical questions that might appear on an internal control questionnaire for investments in marketable securities. Is custody of investment securities maintained by an employee who does not maintain the detailed records of the securities?

2. Are securities registered in the company name?

3. Are investment activities reviewed by an investment committee of the board of directors?

Required:

1. Describe the purpose of each of the above controls.

2. Describe the manner in which each of the above procedures might be tested.

3. Assuming that the operating effectiveness of each of the above procedures is found to be inadequate, describe how the auditors might alter their substantive procedures to compensate for the increased level of control risk.

Question 3 - Adapted AICPA Task-Based Simulation You are involved with the audit of Jelco Company for year 1 and have been asked to consider the confirmation reply results indicated below. For each confirmation reply as to the proper action to be taken from the following possible actions:

(1) Exception; propose an adjustment.

(2) Send a second confirmation request to the customer.

(3) Examine shipping documents and/or subsequent cash receipts.

(4) Verify whether the additional invoices noted on the confirmation reply pertain to the year under audit or the subsequent year.

(5) Not an exception, no further audit work is necessary.