You are the audit manager of ChefNZ Ltd, a large company, which runs a number of...

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Accounting

You are the audit manager of ChefNZ Ltd, a large company, whichruns a number of select gourmet restaurants throughout New Zealand.During the planning phase for the current year audit, you note thefollowing information:
Darcy Strong, the general manager has discovered a fraud involvingthe theft of more than $70,000 of cash. The person(s) who stole thecash were waiters/waitresses who simply pocketed any cash theyreceived from restaurant customers and destroyed the manuallygenerated hard copy bills for the orders charged to thesecustomers. No correcting entries have been posted as yet, becausethe fraud is still being investigated and Darcy is not sure ofexactly how much money has been stolen.
You plan to ensure that relevant Internal Control Questionnaires(ICQs) are checked to ensure that they properly cover the abovescenario.
Required:
a) Identify and explain which financialstatement assertion is currently not true with regard to therestaurant sales amount in the accounting records of ChefNZLtd.

b) Identify two internal controls you would expectto be in place to prevent and/or detect theft of this nature. Youranswer should include identifying at least one relevant controlfrom any two of the following possible categories ofcontrols:
i) source document design;
ii) independent checks or reconciliations; and
iii) personnel or segregation of duties.

c) Briefly explain what an Internal ControlQuestionnaire (ICQ) is and what it is used for.

d) State how you would test each of the controlsexamples which you have identified in (b) above, using a differentaudit procedure for each.

Answer & Explanation Solved by verified expert

3.6 Ratings (498 Votes)

A There are two financial statement assertions that have been violated in the given case Completeness and Understandability and Classification Completeness All account balances transactions and disclosures that should have been recorded have actually been recorded and included in the financial statements Understandability Classification Transactions have been recorded in the proper accounts Financial information is appropriately presented and described with disclosures clearly been expressed B Going forward with this case two internal control activities should have been in place in order to prevent and detect fraud of this type They are namely independent checks to maintain Accountability of the assets and segregation of duties Independent Checks for Accountability See Answer

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Transcribed Image Text

You are the audit manager of ChefNZ Ltd, a large company, whichruns a number of select gourmet restaurants throughout New Zealand.During the planning phase for the current year audit, you note thefollowing information:Darcy Strong, the general manager has discovered a fraud involvingthe theft of more than $70,000 of cash. The person(s) who stole thecash were waiters/waitresses who simply pocketed any cash theyreceived from restaurant customers and destroyed the manuallygenerated hard copy bills for the orders charged to thesecustomers. No correcting entries have been posted as yet, becausethe fraud is still being investigated and Darcy is not sure ofexactly how much money has been stolen.You plan to ensure that relevant Internal Control Questionnaires(ICQs) are checked to ensure that they properly cover the abovescenario.Required:a) Identify and explain which financialstatement assertion is currently not true with regard to therestaurant sales amount in the accounting records of ChefNZLtd.b) Identify two internal controls you would expectto be in place to prevent and/or detect theft of this nature. Youranswer should include identifying at least one relevant controlfrom any two of the following possible categories ofcontrols:i) source document design;ii) independent checks or reconciliations; andiii) personnel or segregation of duties.c) Briefly explain what an Internal ControlQuestionnaire (ICQ) is and what it is used for.d) State how you would test each of the controlsexamples which you have identified in (b) above, using a differentaudit procedure for each.