Assignment
Questions
1) Given the description of how McPeters' restaurant #3 orders merchandise, receives shipments, process invoices, and makes payments included at the end of these instructions, identify three potential financial risks to McPeters and suggest one control procedure that might mitigate each risk. I am not looking for operating risks like losing a customer, but risks that affect the accuracy of the financial statements or loss of assets. Classify your risks as using the transaction objectives of completeness, occurrence, and/or accuracy. I want you to ignore otheraudit objectives for this question.
The control should be new to McPeters and not already be mentioned in the case. Consider all activity from the point that the associate manager takes an inventory and prepares an order until Uwe mails the check. Explain how each control will support the audit objective it is designed to support and discuss a potential weakness in the control. Your explanation and identification of potential weakness should provide sufficient detail so that I can tell you understand how the control works. For example, "segregation of duties" is not an acceptable explanation. You need to tell me why segregating specific duties would help support the audit objective you identified. Your answer should include three distinct risks and three distinct controls even if one control would mitigate both risks.
Finally, no control is 100% effective. Thus, I want you to identify a weakness in the control you are suggesting they implement. Answer the question by filling in the following table.
Hint: Try to step back as you read the case and think about how a transaction could fail to be recorded or, once recorded, be lost in the process (completeness); how an invalid transaction could be recorded (occurrence); and how a valid transaction that was recorded could have inaccuracies in the recording. A common mistake students make with completeness and occurrence is that they only apply to an entire transaction and not the details of the transaction. For example, if a valid transaction is recorded, but some data are missing, that is an accuracy violation, not a completeness violation.
Another common mistake is not attending to the last paragraph. Your weakness needs to be a weakness in the control you suggest and not just a restatement of the weakness in their existing procedures that led to your control suggestion.
Risk Controls Explanation Potential Weakness
2) For each of the following balance audit objectives, suggest a substantive procedure that could test the ending fixed asset account balance directly and explain how your test would provide support for the objective.
Hint: By "ending fixed asset balance directly," I mean that I want you to provide tests based on the ending balance and not test of transactions that led to the balance like acquisitions and disposals.
a) Existence -
b) Rights and obligations -
c) Completeness -
d) Accuracy -
3) Use the Ap_Transand Vendor tables in the Accounts_Payable folder of the Sample Project.ACL project in ACL to answer this question. The file lists accounts payable invoices received by Metaphor in 2000. I believe the column headings are sufficiently descriptive of the contents of the columns and I have not included a description of their contents here. Just keep in mind that these are accounts payable transactions and so the invoices are coming in from the various vendors and, therefore, the numbering of invoices are not controllable by Metaphor. Also, the file has an unusual feature in that each invoice only includes one product. Usually vendors supply more than one type of product and their invoices would include more than one product. You can ignore this usual feature. It is an artifact of keeping the file simple for educational purposes.
For each of the following activities, describe how you solved it in ACL and what the results of your test were. Also, describe the audit purpose of the test to include the audit objective(s) involved. You do not have to turn a copy of your results and just need to describe them in your answers.
Hint: I have not developed a tutorial for this assignment nor have I specified which functions you need to use. You can solve all these problems using functions that have been previously covered in class and I want to push you a bit to see if you can figure out which ones apply to each step question. I don't require that you use the functions we have covered thus far in the class and, if you can find a different way to answer the question, you are free to do so. However, question c) requires a special type of join so I have added some additional guidance on that question.
a) Are there any blank fields in any row in the Ap_Trans table?
b) Are the Invoice Amounts accurately extended from the Quantity and Cost fields in the Ap_trans file?
c) The Vendor file is Metaphors listing of approved vendors. Are there any invoices in the Ap_Trans table that don't match an approved vendor?
Hint: This is a complex question that will require you build a different type of join that we did in Week 8. I have included the appropriate help file at the end of the assignment after the McPeters case to help you figure out how to solve it. In addition, you will need to use the Vendor file as your primary table. You need to find the type of join that will find any invoices in the Ap_Trans file that don't match a vendor in the Vendor table. You will only need two output files in your output table - Vendor Number from the Vendor file and Invoice Number from the Ap_Trans file. If you get an invoice that has a blank field in the Vendor Number column, then the vendor number for that invoice doesn't exist in the Vendor file.
McPeters Case Description
McPeters is a regional chain of fast food restaurants operating on the West Coast of the United States. McPeters is publicly owned and its stock is traded on the American Stock Exchange. A Board of Directors, who has appointed a Chief Executive Officer to handle the day-to-day management of the chain, runs McPeters. McPeters offers New Mexican cuisine in a fast food style. Their menu includes tacos, burritos, tostados, enchiladas, fajitas, and salads with a variety of fillings, most of which include green chilies. All restaurants are company owned and operated. Each has a manager who is responsible for the daily operations of the restaurant including hiring and scheduling staff, purchasing food and supplies, and running local promotions.
McPeters restaurant #33, located in LodiCalifornia, recently opened and its new manager, Uwe Gonzales, is concerned about competing with established Mexican restaurants and fast food outlets in the area. Lodi is an agricultural community in the middle of the great Central Valley of California and many of its residents are Hispanic. Uwe feels that his customers will be very sensitive to the quality of the ingredients he uses and wants to monitor his food vendors closely. He has established the following purchasing procedures to control interactions with food vendors.
Each night, the assistant manager responsible for closing the restaurant takes an inventory of food and supplies on hand and writes up a purchase order to replenish the inventory for these items. (S)he consolidates all items that are ordered from an individual vendor into one order so that there are only one order per vendor. Uwe, who opens up in the morning, reviews the purchase orders and contacts the restaurant's primary vendors to place the orders. Before placing the orders, he double checks the vendors' files to make sure that there have been no problems with the vendors' delivery speed or product quality. Uwe has established electronic ordering arrangements with all his vendors and so all he has to do is either e-mail the order to the vendor or use the vendor's website, if the vendor maintains one. An electronic copy of all orders is stored in the restaurant's database when they are placed.
When shipments arrive, Uwe or the assistant manager on duty receives the shipment by checking in the food and supplies and comparing the items shipped to an electronic copy of the PO stored in the restaurant's database system. For control purposes, Uwe insists that only one person, either himself or one of the assistant managers, check in merchandise. The person who checks in the shipment updates the restaurant's database by recording the amount and date of the items received and preparing an electronic receiving report in the restaurant's database. Uwe does not allow shipments to be received if they were not ordered. They are not even removed from the vendor's or shipper's truck.
Any problems with a vendor's shipments (e.g., late shipments or incomplete shipments, defective items) are logged in the database. Since the restaurant cannot control how the vendors structure their shipments, shipments can be incomplete because the vendor does not have sufficient quantities on hand to fill the order. In addition, the vendor can combine more than one order into one shipment.
Because of the perishable nature of food products, Uwe does not allow backorders. If a vendor ships an incomplete order, that portion of the order is cancelled and the missing items are reordered.
When invoices arrive from the vendors, the restaurant's bookkeeper compares the information on the invoice to the order and receiving information in the restaurant's database; writes a check for payment but does not sign it; and includes the vendor' invoice with the check, which she forwards to Uwe for payment. Since Uwe cannot control vendors' billing practices, invoices may cover parts of shipments or more than one shipment. To make the payment, Uwe must sign all checks and he usually double checks, on a sample basis, the bookkeepers' work before signing and mailing the checks. The invoice and all supporting documents are sent to Uwe to support the checks so he can verify the bookkeeper's work. Uwe mails the checks to the vendors.
Attachment:- Assignment.rar