7-28 (Objective 7-4) The following are examples of audit procedures:

1. Watch employees count inventory to determine whether company procedures are being followed.

2. Count a sample of inventory items and record the amount in the audit files.

3. Calculate the ratio of sales commission expense to sales as a test of sales commissions.

4. Review the accounts receivable with the credit manager to evaluate their collectibility.

5. Compare a duplicate sales invoice with the sales journal for customer name and amount.

6. Obtain a written statement from a bank stating that the client has $15,671 on deposit and liabilities of $500,000 on a demand note.

7. Add the sales journal entries to determine whether they were correctly totaled.

8. Obtain a letter from the clients attorney addressed to the CPA firm stating that the attorney is not aware of any existing lawsuits.

9. Extend the cost of inventory times the quantity on an inventory listing to test whether it is accurate.

10. Obtain a letter from an insurance company to the CPA firm stating the amount of the fire insurance coverage on buildings and equipment.

11. Examine an insurance policy stating the amount of the fire insurance coverage on buildings and equipment.

12. Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of gross margin relative to the preceding year.

13. Obtain information about internal control by requesting the client to fill out a questionnaire.

14. Trace the total in the cash disbursements journal to the general ledger.

15. Examine a piece of equipment to make sure that a major acquisition was actually received and is in operation.

16. Examine corporate minutes to determine the authorization of the issue of bonds.

17. Obtain a letter from management stating that there are no unrecorded liabilities.

18. Review the total of repairs and maintenance for each month to determine whether any months total was unusually large.

***Required Classify each of the preceding items according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.