Question
1.The auditing procedure reperforming relates to which one of the following types of audit evidence? a.mathematical b.documentary c.physical d.analytical 2.The five management assertions outlined in
1.The auditing procedure reperforming relates to which one of the following types of audit evidence?
a.mathematical
b.documentary
c.physical
d.analytical
2.The five management assertions outlined in generally accepted auditing standards include all of the following except:
a.rights and obligations.
b.materiality.
c.existence and occurrence.
d.presentation and disclosure.
e.valuation or allocation.
3.Which of the following would not be considered an analytical procedure?
a.calculate the gross profit ratio and compare it to the industry figure
b.compare current year's operating expenses to prior year's
c.compare current year's working capital to prior year's
d.divide sales commissions by sales and compare the results to the established commission rate
e.compare the per unit price on a sales invoice to the master price list
4.Auditing standards require the auditor to gather sufficient appropriate evidence to provide a reasonable basis for an opinion regarding the financial statements. What are the characteristics of (a) sufficient audit evidence and (b) appropriate audit evidence? How are sufficiency and appropriateness related?
5.Following is a list of audit procedures performed. For each procedure listed below, classify the evidence gathered according to one (or more, if applicable) of the audit procedure types and identify the assertion(s) being tested.
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 client'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.
i)Request a statement from a major customer as to its agreement or disagreement with a year-end receivable balance shown to be due to the audit client.
j)Develop a spreadsheet to calculate an independent estimate of the client's warranty liability (reserve) based on production data and current warranty repair expenditures.
k)Meet with the client's internal legal department to determine its assessment of the potential outcome of pending litigation regarding a patent infringement suit against the company.
l)Review all major past-due accounts receivable with the credit manager to determine whether the client's allowance for doubtful accounts is adequate.
m)Make test counts of inventory items counted by client personnel.
n)Obtain information about the client's processing system and associated controls by asking the client's personnel to fill out a questionnaire.
o)Examine board of directors' minutes for the approval of a major bond issued during the year.
p)Have the client's outside law firm send a letter directly to the auditor providing a description of any differences between the lawyer's assessment of litigation and that of the client.
Organize your answer as follows:
ProcedureType of ProcedureAssertion Tested
a.
b.
6.Management assertions:
Describe the management assertions relevant to cash and other liquid assets using the five management assertions relevant to cash and other liquid assets listed below:
existence
completeness
rights and obligations
valuation
presentation and disclosure
7.Assume that you are planning the audit of the Lenter Supply Company's cash account. Describe how each of the procedures could be used in the audit of cash and identify the related assertion(s) the procedure is designed to test.
Procedure
How Used (examples)
Assertion(s) Tested
1.Observation
2.Reperformance
3.Inspection of assets
4.Inquiry
5.External Confirmation
6.Inspection of Documentation
7.Recalculation
8.Analytical Procedures
8.What are the purposes of an audit program?
9.Describe the five essential techniques of good working paper documentation.
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