ACCT 444 Week 5Homework Solution
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.
13-30 (Objectives
13-5, 13-7) Following are
evidence decisions for the three audits described in Figure 13-3 onpage 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.
Transaction-Related Audit Objectives14-26 (Objective 14-3) The following are selected transaction-related audit objectives and audit procedures for sales transactions:
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.
2.
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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