Audit review and Documentation

Description

To properly assess the internal controls that are in place at Bovar Company, you have found that there are three major objectives that an entity should follow in designing an effective internal control system. They are as follows:

• Reliability of financial reporting
• Efficiency and effectiveness of operations
• Compliance with laws and regulations

In 3–4 paragraphs, complete the following:

• Discuss the meaning of each of the following major objectives:
  • Reliability of financial reporting
  • Efficiency and effectiveness of operations
  • Compliance with laws and regulations
• Discuss how they might be satisfied at Bovar Company.
• Prepare an unadjusted misstatement audit schedule with a comment on your judgment of the audit findings based on the following audit results for Bovar. Bovar has the following misstatements (any amount more than 5% of current assets, total assets, and income before taxes):
  • Understated allowance for uncollectible accounts: $95,000 estimated based on analytical procedures
  • Accounts receivable or sales cutoff misstatements: $60,000 estimated population misstatements based on the sample, including sampling error ($60,000 accounts receivables or sales were not included in the cutoff reporting period.)
  • Difference between physical inventory and book figures: $120,000 actual population misstatements. (The physical inventory is higher than the book figures by $120,000.)
  • Unrecorded liabilities: $285,000 estimated population misstatements based on the sample, including sampling error
  • Repairs or expense items that should have been capitalized: $90,000 estimated based on analytical procedures