Auditing

FINAL ASSESSMENT
ACT 480- Auditing– Online Summer – 2020 P a g e 2 | 3
QUESTION 1) (20 pts) The following are misstatements that have occurred in Fresh Foods Grocery Store,
a retail and wholesale grocery company:
1. On the last day of the year, a truckload of beef was set aside for shipment but was not shipped. Because
it was still on hand, the inventory was counted. The shipping document was dated the last day of the year,
so it was also included as a current-year sale
2. Employees in the receiving department took sides of beef for their personal use. When a shipment of
meat was received, the receiving department filled out a receiving report and forwarded it to the
accounting department for the amount of goods actually received. At that time, two sides of beef were
put in an employee’s pickup truck rather than in the storage freezer.
3. During the physical count of inventory of the retail grocery, one counter wrote down the wrong
description of several products and miscounted the quantity.
REQUIRED
a) For each misstatement, identify one or more types of controls that were absent. (10 pts)
b) For each misstatement, suggest a control that may have prevented or detected the misstatement. (10
pts)
QUESTION 2) (30 pts) When a client fails to follow GAAP, the audit report can be unmodified, qualified,
or adverse depending on the materiality. Provide your own examples for each case. (10 pts each, 150
words each)
QUESTION 3) (25 pts) CASE OF ATLAS INC.1 The seasoned executives were excited at the opportunity to
enter the market without the bureaucratic burden of a larger corporation. With contracts and experienced
personnel already in place, Atlas aggressively hit the market and their bottom-line grew quickly. The
message from executive management was for employees to get back to the basics of doing good business
and have fun while doing it. The president articulated that he did not want the web of policies and
procedures from the previous corporate culture to follow them to Atlas. No one heard that message
louder than John, the Vice President of Operations. Without oversight, John’s spending habits dramatically
increased as a false sense of power overtook him. Unable to cover his debts through his corporate expense
account, he took a different course of action to increase his earnings. After four years of Atlas’ strong
growth and performance, an anonymous tip led executives to uncover that Atlas had been paying a false
vendor for two years. The false vendor fabricated reports for the services it was supposed to have
provided to Atlas. The perpetrator of this fraud was John, Atlas’ own Vice President of Operations. An
ineffective and poorly designed process for the selection of new vendors allowed John the authority to
approve a new vendor, review the vendor’s reports, and approve the vendor’s invoices for payments.
Atlas prided itself on allowing employees to provide referrals to vendors who had the best experience
serving Atlas’ unique market; however, in the absence of checks and balances, this created an
environment ripe for fraud. As a result, John simply created a fake company and recommended this
company to Atlas.
1 Preventing Fraud, Baker Tilly. Case can be downloaded from
http://news.acc.com/accwm/downloads/BakerTilly_081613.pdf
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FINAL ASSESSMENT
ACT 480- Auditing– Online Summer – 2020 P a g e 3 | 3
REQUIRED
a) Analyze the CASE OF ATLAS INC and indicate the three conditions of fraud on a triangle consistent
to the methodology e discussed in the class. (10 points, 150 words)
b) Evaluate the quality of control environment in Atlas Inc. considering the subcomponents of
control environment as given in your textbook. (15 pts, 250 words)
QUESTION 4) (25 pts) The figure below shows the direction of the relationships between the types of
risks and the level of audit evidence in the audit risk model. Explain the figure in your words. (400 words)
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