Mid term test group

6-10 [LO 2 Refer to Exhibit 6.5 and identify the nine types of audit proce- dures used as part of the audit evidence-gathering process.. Following is a list of audit procedures performed

6-10 [LO 2 Refer to Exhibit 6.5 and identify the nine types of audit proce-

dures used as part of the audit evidence-gathering process Following is

a list of audit procedures performed For each procedure, listed as (a) through (p), classify the evidence gathered according to one (or more,

if applicable) of the audit procedure types indicated in Exhibit 6.5 and identify the primary assertion(s) being tested Organize your answer as

follows:

Procedure Type of Procedure Assertion Tested

a

b

a Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of the balance for cost of goods sold

b Trace a sales transaction from the origination of an incoming sales order to the shipment of merchandise to an invoice and to the proper recording in the sales journal

c Test the accuracy of the sales invoice by multiplying the number

of items shipped by the authorized price list to determine extended cost Foot the total and reconcile it with the total invoiced

d Select recorded sales invoices and trace the corresponding shipping

documents to verify the existence of goods shipped

e Examine canceled checks returned with the client’s January bank statement as support of outstanding checks listed on the client’s December year-end bank reconciliation

f Perform inspection and independently count a sample of the cli- ent’s marketable securities held in a safe deposit box

g Tour the plant to determine that a major equipment acquisition

was received and is in working condition

h Review a lease contract to determine the items it covers and its major provisions.

Exhibit 65: ‹

- Types of Audit Procedures

Categories of

Audit Procedures Purpose

Tests of controls Evaluate the

operating

effectiveness of

controls

i

le

Tu

| ul whether material

exist in the finan-

Types of Audit Procedures Typically Performed

Inspection of documentation

Observation

Reperformance

Inquiry

Inspection of

documentation

Inspection of assets External confirmation

Recalculation

Analytical procedures

_ Scanning

5-30 If a company’s control risk is initially assessed as low, the

auditor needs to gather evidence on the operating effectiveness of the

controls For each of the following control activities listed as (1)-(10),

complete the following two tasks:

a Describe the test of control that the auditor would use to deter-

mine the operating effectiveness of the control

b Briefly describe how substantive tests of account balances should

be modified if the auditor finds that the control is not working

as planned In doing so, indicate: (a) what misstatement could

occur because of the control deficiency, and (b) how the audi-

tor’s substantive tests should be expanded to test for the potential

misstatement

1 Credit approval by the credit department is required before sales-

persons accept any order of more than $15,000 and for all cus- tomers who have a past-due balance higher than $22,000

2 All merchandise receipts are recorded on prenumbered receiving

slips The controller’s department periodically accounts for the numerical sequence of the receiving slips