The auditing standards board has proposed a framework with which to assess audit assertions for all items in a company’s financial statements.

Required:

Assume you are auditing a wholesale florist that delivers to major customers in a metropolitan area and surrounding community. Consider the account balance for a property account entitled Delivery Vans.

a. Identify the major assertions that will be tested in conjunction with the annual audit of this account balance.

b. Explain how the relationship between accounts and audit procedures enhances the efficiency of the audit. Explicitly, describe the relationship between depreciation expense, accumulated depreciation, and the property account as shown on the balance sheet. Explain how the audit of one of the accounts provides information on the other accounts.

c. Assume the Delivery Vans account looks as follows:

The accumulated depreciation account for the year is:

1. What information do you have about the items disposed of during the year? How would you determine whether the disposal was properly accounted for?

2. Develop an audit program to test each of the assertions identified in item (a) for both the property account and the accumulated depreciation account.

3. Assume a new account appeared on the books this year, entitled Delivery Van Lease Expense. How would the auditor determine that the lease is properly accounted for as a current expense item instead of being capitalized and amortized with the other delivery vans?

Transcribed Image Text:

Beginning Balance $125,000 Additions 45,000 Disposals (20,000) Ending Balance 150,000