Auditing & Fraud: Analyzing Internal Control Weaknesses & Solutions

This assignment solution focuses on auditing and internal controls to prevent fraud in various business scenarios. It addresses potential employee fraud in situations involving inventory management, cash handling, and credit card usage, suggesting specific internal controls to detect and prevent these fraudulent activities. The solution also covers audit evidence for obsolete inventory, long-term leases, and goods with warranties. Additionally, it discusses the importance of searching for unrecorded liabilities during final audits and the impact of differing cut-off periods between internal and external auditors. The document concludes by referencing relevant academic literature on auditing and risk management. Desklib provides students access to this and other solved assignments to aid in their studies.

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Auditing
Name:
Course
Professor’s name
University name
City, State
Date of submission

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Auditing
1.(a) Is there any way that an employee could try to defraud the employer?
Situation 1
Without the real confirmation of the goods sold by Kendrick, there is a possibility that the sales
person might tamper with the quantity or pricing which is one of the ways that fraud could start.
Internal Control to detect/prevent fraud.
Fraud can be controlled by physical examination of the goods sold not only at the point of
collection but also at the point of sale.
Situation 2
In this case theft of cash could occur especially if the money is left unbanked for a long time.
Internal Control to detect/prevent fraud.
Money should be banked every day and a deposit slip should be kept by senior management on a
daily basis Cameran, Prencipe and Trombetta ( 2016).
Situation 3
In this case Beatrice can be able to use the credit card for other personal expenses not related to
the business.
Internal Control to detect/prevent fraud.

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Beatrice should ask for approval of every expense before paying it using the credit card, she
should not the authority to approve any of her payment and also she should be asked to bring a
comprehensive statement of all the payments made.
Audit evidence
a)Obsolete inventory evidence
The auditor will have to do a physical count of the goods using the tags on the goods.
b) Evidence for properties on long-term leases
The auditor will have to verify lease dates, amounts and signatures. Second, double check on the
title deeds if any and the lease deposit, then do an independent valuation.
c)Goods with warranty
The auditor should check the credit notes issued and also the nature of the credit notes on the
goods returned.
3. Final Audit
a) Whatever the test procedure, a search for unrecorded liabilities is necessary . Thus, when a
post balance sheet test is conducted the risk period should be defined. Thus, the test will not be
affected Spira and Page ( 2003).

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b) If the cut off period as defied by the internal auditor is different from the one of the external
auditor definitely the audit report of the unrecorded liabilities will be affected.
c)1) Voucher register
2) Accounts payable

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References
Cameran, M., Prencipe, A. and Trombetta, M., 2016. Mandatory audit firm rotation and audit
quality. European accounting review, 25(1), pp.35-58.
Spira, L.F. and Page, M., 2003. Risk management: The reinvention of internal control and the
changing role of internal audit. Accounting, Auditing & Accountability Journal, 16(4), pp.640-
661.