11-6 Provide two examples of circumstances where it would be appropriate to use audit staff with special qualifications in performing tests of controls. When is it most appropriate to use entry-level staff to perform tests of controls?

11-8

(Necessary application controls/tests of controls) In auditing the financial statements of the The Lively Trout Company, you discover the following internal controls associated with the company's EDP system:

1. 1. Computer generates prenumbered control over requisitions and purchase orders and checks numerical sequence.
2. 2. Computer compares account distribution on the voucher with account distribution on purchase requisition or purchase order.
3. 3. Computer checks batch totals and run-to-run totals to ensure that all transactions are processed.
4. 4. Computer matches of voucher information regarding vendor, type of good, quantity of goods, and dollar amount against authorized purchase order and receiving report.
5. 5. Computer checks for a valid purchase order in order to initiate receiving report.
6. 6. Computer verification of employee authorization code to enter requisition or purchase order.
7. 7. Computer performs limit test on requisitions and purchase orders. Necessary approvals tied to limit test.
8. 8. Computer checks the mathematical accuracy of the voucher and supporting documents.
9. 9. Computer compares vendor on purchase order to master vendor file.
10. 10. Computer checks for goods ordered and not received within a reasonable period of time.
11. 11. Computer checks for goods received but not recorded as a liability within a reasonable period of time. In the case of services, the computer checks for services ordered but not recorded as a liability within a reasonable period of time.
12. 12. Computer compares accounting period in which the voucher is recorded with the accounting period received.
13. 13. Computer checks the mathematical accuracy of the voucher and supporting documents.
14. 14.Computercomparessumofsubsidiaryledgeraccountswithgeneralledgercontrolaccount.

Required

Identify the assertion that is controlled by each of the control procedures identified above.

11-9

(Auditing around versus through the computer) CPAs may audit around or through computers in examining financial statements of clients who use computers to process accounting data.

Required

a. Describe the auditing approach referred to as auditing around the computer.

b.

Under what conditions does the CPA decide to audit through the computer instead of around the computer?

c.

In auditing through the computer, the CPA may use test data.

1. What are test data?

2. Why does the CPA use test data?

3. How can the CPA become satisfied that the computer program tapes presented by the client are actually being

used to process its accounting data?

13-8

List the steps involved in selecting and evaluating a nonstatistical or a statistical sample for tests of controls. Identify the professional judgments that must be made associated with each step.