Appropriateness of Audit Evidence (22 points)

1.

2.

An auditor tests sales for completeness by selecting 50 sales invoices and vouches them to shipping documents. Explain FULLY why this evidence is not appropriate.

For each item presented below, indicate which means of gathering evidence would be considered more reliable [(1) or (2)] AND indicate a reason from the following list:

A. Independent source of the information (Independence of provider);

B. Auditor's direct knowledge;

C. Knowledgeable source (qualifications of individuals

providing the information);

D. Degree of objectivity versus subjectivity; and E. Functioning system of internal controls.

CHOOSE ONLY ONE LETTER.

DO NOT DISCUSS your answer. READ CAREFULLY.

Items

Answers

Item Number more reliable a. ______

b. ______

c. ______

d. ______

Letter for reason _____

_____

_____

_____

1. In testing assets, (1) the auditor verifies the cost of additions to the "land" account, or (2) the auditor considers the adequacy of the "allowance for doubtful accounts".
2. (1) The auditor relies on an analysis prepared by the controller of gross margin to sales for the current and prior periods; or (2) The auditor calculates gross margin to sales and compares to similar data for prior periods.
3. Auditor tests two segments of the company. (1) In the first segment, control risk is assessed at .20; (2) In the second segment, control risk is assessed at .80.
4. (1) The auditor counts and considers the quality of a client's inventory of precious gems ; or (2) the auditor reviews and makes test counts of a rental car company's fleet of cars.