Question
Assume that your understanding of internal controls over acquisitions and cash disbursements and the related tests of controls and substantive tests of transactions support an
Assume that your understanding of internal controls over acquisitions and cash disbursements and the related tests of controls and substantive tests of transactions support an assessment of a low control risk. The listing of the 519 accounts making up the accounts payable balance of $12,969,686 at December 31, 2011.
Study Table 19-5 below containing balance-related audit objectives and tests of details of balances for accounts payable to be sure you understand each procedure and its purpose. Prepare an audit program for accounts payable in a performance format, using the audit procedures.
TABLE 19-5 Analytical Procedures for Income and Expense Accounts
Analytical Procedure | Possible Misstatement |
---|---|
Compare individual expenses with previous years. | Overstatement or understatement of a balance in an expense account. |
Compare individual asset and liability balances with previous years. | Overstatement or understatement of a balance sheet account that will also affect an income statement account (for example, a misstatement of inventory affects cost of goods sold). |
Compare individual expenses with budgets. | Misstatement of expenses and related balance sheet accounts. |
Compare gross margin percentage with previous years. | Misstatement of cost of goods sold and inventory |
Compare inventory turnover ratio with previous years. | Misstatement of cost of goods sold and inventory |
Compare prepaid insurance expense with previous years. | Misstatement of insurance expense and prepaid insurance. |
Compare commission expense divided by sales with previous years. | Misstatement of commission expense and accrued commissions. |
Compare individual manufacturing expenses divided by total manufacturing expenses with previous years. | Misstatement of individual manufacturing expenses and related balance sheet acco |
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