VALLEY PUBLISHING COMPANY
Test of Purchases – Items Noted from Schedule T/1
12/31/X1
Voucher NumberVendorAudit TestAmountDescription of ItemEvaluation of Item [1]
3-17National Newsprint CorporationB#128,080.No purchase requisition, no explanation.
Item appears to be a genuine purchase.
Duncan approved item at time of payment approval. No explanation.Exception
No validity problem. B
3-22Gilford BostrowH#22,500No invoice or approval. Expense approved by Board, services provided, and genuine expense.
No explanation.No exception
No validity problem
6-26Midwestern Safe Insurance Co.C#324,000No invoice approval. Genuine expense as per letter agreement and Board approval. No explanation.
No exception
No validity problem
* 6-30Chamber of CommerceC#44,500No invoice approval, nor Board approval. Genuine expense but improper acct. Exception
Validity problem. A
* 9-32K-MartK#566.Voucher Acct. #835 (Supplies) assigned to Acct. #832 (Newspaper Services) on Voucher Register.
Exception
No validity Problem
10-04Illinois Eastern TransportI#6 11,760.Freight for print equipment should be charged to Acct. #330 (Printing Equip) not to Acct. #131 (Newsprint Inventory)Exception
Validity Problem B,C
[1]
12-33National Newsprint Corporationcut-off
problem9,520FOB Center City, 1/2/x2 invoice, 19×2 inventory item. cut-off problem N/A
Validity Problem [4]
TB 1
Audit Tests
Test of Controls:
B Purchase Requisition for purchases over $200 approved by Mr. Duncan.
C Invoice approved by appropiate operating personal.
Substantive Tests:
H Examine the voucher, determine that the documents exists and are in agreement.
I Review the voucher for charge to the proper account.
K Trace the voucher to the Voucher Register.
N/A Not applicable to 19×1 audit test
TB Trial Balance
X# Items noted from T/1
AJE #1 330 Printing Equipment 11,760
[1] 131 Newsprint Inventory 11,760
VALLEY PUBLISHING COMPANY
Test of Purchases
Summary of Exceptions from T/2
12/31/X1
Totals [2]ErrorsPercent [3]
Approvals302 6.7% A
Accumulations301 3.3% B C
Classification301 3.3% B
totals304 13.3% [3]
[1] All items are classified as exception or no exception for evaluating control risks.
Validity problems may require adjusting entries. See AJE #1
[2] Thirty (30) vouchers tested from T/1. 20% of all vouchers were tested.
[3] Tolerable Rate of Error [TR] has been set at 7% for combined test of controls and substantive test of transactions
Combined error rate of 13.3% is not acceptable
[4] Cut-off error. Trial Balance to be adjusted to rectify validity error.
A. Validity – Error rate is slightly below misstatement of 7%, hower, allowing any amount for sampling error, the test ia not acceptable on a quantitative basis. Other factors should be considered –
There are other controls in place and working over existance (validity)
No dollar errors were discovered.
These other factors mitigate against quantitative results.
B. Accumulation of Classification – After allowing for some amount for sampling error, the error rate of 3.3% would still appear to be within the range of acceptablity.
C. See additional testing discussed on T/2, item #6 to partically overcome the effect of control risk on this error.
*Notes: Acct. # 890 (Miscellaneous Expense) should be examined to ascertain whether additional accounts should be established for large and/or regular expenses. i.e. Professional Membership Expenses, Advertising Expense, and Charitable Contributions.
Voucher # 9-32, although a misstatement of accounts on the Voucher register, is an immaterial amount and therefore does not need to be adjusted.
Memo
To: Mr. Bayes
From: Jackie Heuer
Date: April 15, 1998
Re: Valley Publishing Company – Test of Transactions
After performing a Test of Transactions on 30 pre-selected transactions, I have found an error rate of 13.3%. Since the combined TR rate has been set at 7%, this is not acceptable. Although there were no errors of valuation, there was a 3.3% error in classification. One error was of a material amount of $11,760. The classification error will require an adjusting entry.
Although Valley Publishing has made significant improvement in their internal control structure from the previous years, greater diligence should be exercised in the approval control process. Because errors were recognized, I do not feel that the control risk factor should be reduced but because improvements have been made, I do not feel it should be increased either.
I couldnt help but notice the Miscellaneous Expense Acct. #890. It is very large – $216.900 and I believe it is not being used for its intended purpose and needs further examination. Two vouchers of material value which I tested were classified to that account – WCCI and the Chamber of Commerce, and I think should be classified more appropriately.
VALLEY PUBLISHING COMPANY
Test of Purchases – Items Noted from Schedule T/1
12/31/X1
Voucher NumberVendorAudit TestAmountDescription of ItemEvaluation of Item [1]
3-17National Newsprint CorporationB#128,080.No purchase requisition, no explanation.
Item appears to be a genuine purchase.
Duncan approved item at time of payment approval. No explanation.Exception
No validity problem. B
3-22Gilford BostrowH#22,500No invoice or approval. Expense approved by Board, services provided, and genuine expense.
No explanation.No exception
No validity problem
6-26Midwestern Safe Insurance Co.C#324,000No invoice approval. Genuine expense as per letter agreement and Board approval. No explanation.
No exception
No validity problem
* 6-30Chamber of CommerceC#44,500No invoice approval, nor Board approval. Genuine expense but improper acct. Exception
Validity problem. A
* 9-32K-MartK#566.Voucher Acct. #835 (Supplies) assigned to Acct. #832 (Newspaper Services) on Voucher Register.
Exception
No validity Problem
10-04Illinois Eastern TransportI#6 11,760.Freight for print equipment should be charged to Acct. #330 (Printing Equip) not to Acct. #131 (Newsprint Inventory)Exception
Validity Problem B,C
[1]
12-33National Newsprint Corporationcut-off
problem9,520FOB Center City, 1/2/x2 invoice, 19×2 inventory item. cut-off problem N/A
Validity Problem [4]
TB 1
Audit Tests
Test of Controls:
B Purchase Requisition for purchases over $200 approved by Mr. Duncan.
C Invoice approved by appropiate operating personal.
Substantive Tests:
H Examine the voucher, determine that the documents exists and are in agreement.
I Review the voucher for charge to the proper account.
K Trace the voucher to the Voucher Register.
N/A Not applicable to 19×1 audit test
TB Trial Balance
X# Items noted from T/1
AJE #1 330 Printing Equipment 11,760
[1] 131 Newsprint Inventory 11,760