ACCT 444 Week 5 Homework
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ACCT 444 Week 5 Homework
Chapter 13
13-26 (Objectives 13-1, 13-2,
13-3, 13-6) The
following are audit procedures from different transaction cycles:
1.
Use audit software to foot and cross-foot the cash disbursements
journal and trace the balance to the general ledger.
2.
Select a sample of entries in the acquisitions journal and trace
each one to a related vendor’s invoice to determine whether one exists.
3.
Examine documentation for acquisition transactions before and
after the balance sheet date to determine whether they are recorded in the
proper period.
4.
Inquire of the credit manager whether each account receivable on
the aged trial balance is collectible.
5.
Compute inventory turnover for each major product and compare
with previous years.
6.
Confirm a sample of notes payable balances, interest rates, and
collateral with lenders.
7.
Use audit software to foot the accounts receivable trial balance
and compare the balance with the general ledger.
Required
1. For
each audit procedure, identify the transaction cycle being audited.
2. For
each audit procedure, identify the type of evidence.
3. For
each audit procedure, identify whether it is a test of control or a substantive
test.
4. For
each substantive audit procedure, identify whether it is a substantive test of
transactions, a test of details of balances, or an analytical procedure.
5. For
each test of control or substantive test of transactions procedure, identify
the transaction-related audit objective or objectives being satisfied.
6. For
each analytical procedure or test of details of balances procedure, identify
the balance-related audit objective or objectives being satisfied.
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13-30 (Objectives 13-5, 13-7) Following are evidence decisions for the
three audits described in Figure
13-3 on page
411:
Evidence Decisions
1.
The auditor performed extensive positive confirmations at the
balance sheet date.
2.
The auditor performed extensive tests of controls and minimal
substantive tests.
3.
The auditor decided it was possible to assess control risk below
the maximum.
4.
The auditor performed substantive tests.
5.
This audit was likely the least expensive to conduct.
6.
The auditor confirmed receivables at an interim date.
7.
The auditor identified effective controls and also identified
some deficiencies in controls.
8.
The auditor performed tests of controls.
Required
1. Explain
why Audit B represents the maximum amount of reliance that can be placed on
internal control. Why can’t all the audit assurance be obtained by tests of
controls?
.
1.
Explain why the auditor may not
place the maximum extent of reliance on controls in Audit B and Audit C.
1.
For each of the eight evidence
decisions, indicate whether the evidence decision relates to each of the audits
described above. Every evidence decision relates to at least one of the audits,
and some may relate to two or all three audits.
13-33 (Objective 13-4) Kim Bryan, a new staff auditor, is confused
by the inconsistency of the three audit partners she has been assigned to on
her first three audit engagements. On the first engagement, she spent a
considerable amount of time in the audit of cash disbursements by examining
cancelled checks, electronic payments, and supporting documentation, but almost
no testing was spent in the verification of fixed assets. On the second
engagement, a different partner had her do less intensive tests in the cash disbursements
area and take smaller sample sizes than in the first audit, even though the
company was much larger. On her most recent engagement under a third audit
partner, there was a 435436thorough test of cash disbursement transactions, far
beyond that of the other two audits, and an extensive verification of fixed
assets. In fact, this partner insisted on a complete physical examination of
all fixed assets recorded on the books. The total audit time on the most recent
audit was longer than that of either of the first two audits despite the
smaller size of the company. Bryan’s conclusion is that the amount of evidence
to accumulate depends on the audit partner in charge of the engagement.
Required
1. State
several factors that can explain the difference in the amount of evidence
accumulated in each of the three audit engagements as well as the total time
spent.
1. What
could the audit partners have done to help Bryan understand the difference in
the audit emphasis on the three audits?
1. Explain
how these three audits are useful in developing Bryan’s professional judgment.
How could the quality of her judgment have been improved on the audits?
1.
Which audit most likely
represents an integrated audit of a public company’s financial statements and
internal control over financial reporting?
Chapter 14
14-25 (Objectives 14-3, 14-4,
14-5) The
following are commonly performed tests of controls and substantive tests of
transactions audit procedures in the sales and collection cycle:
1.
Account for a sequence of shipping documents and examine each
one to make sure that a duplicate sales invoice is attached.
2.
Account for a sequence of sales invoices and examine each one to
make sure that a duplicate copy of the shipping document is attached.
3.
Compare the quantity and description of items on shipping
documents with the related duplicate sales invoices.
4.
Trace recorded sales in the sales journal to the related
accounts receivable master file and compare the customer name, date, and amount
for each one.
5.
Examine sales returns for approval by an authorized official.
6.
Review the prelisting of cash receipts to determine whether cash
is prelisted daily.
7.
Reconcile the recorded cash receipts on the prelisting with the
cash receipts journal and the bank statement for a 1-month period.
Required
1.
Identify whether each audit
procedure is a test of control or a substantive test of transactions.
2.
State which of the six
transaction-related audit objectives each of the audit procedures fulfills.
3.
Identify the type of evidence
used for each audit procedure, such as documentation and observation.
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14-26 (Objective 14-3) The following are selected
transaction-related audit objectives and audit procedures for sales
transactions:
Transaction-Related Audit
Objectives
1.
Recorded sales exist.
2.
Existing sales are recorded.
3.
Sales transactions are correctly included in the accounts
receivable master file and are correctly summarized.
Procedures
1.
Trace a sample of shipping documents to related duplicate sales
invoices and the sales journal to make sure that the shipment was billed.
2.
Examine a sample of duplicate sales invoices to determine
whether each one has a shipping document attached.
3.
Examine the sales journal for a sample of sales transactions to
determine whether each one has a posting reference in the margin indicating
that it has been automatically compared by the computer with the accounts
receivable master file for customer name, date, and amount.
4.
Examine a sample of shipping documents to determine whether each
one has a duplicate sales invoice number printed on the bottom left corner.
5.
Trace a sample of debit entries in the accounts receivable
master file to the sales journal to determine whether the date, customer name,
and amount are the same.
6.
Vouch a sample of duplicate sales invoices to related shipping
documents filed in the shipping department to make sure that a shipment was
made.
Required
1.
For each objective, identify at
least one specific misstatement that could occur.
1.
Describe the differences
between the purposes of the first and second objectives.
.
1.
For each audit procedure,
identify it as a test of control or substantive test of transactions. (There
are three of each.)
1.
For each objective, identify
one test of control and one substantive test of transactions.
2.
For each test of control, state
the internal control that is being tested. Also, identify or describe a
misstatement that the client is trying to prevent by use of the control.
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