Define inherent risk. Can the auditors reduce inherent risk by performing audit procedures?

2. What are the major purposes of obtaining representation letters from audit clients?

3. Simulation

Auditors consider financial statement assertions to identify appropriate audit procedures. For items a through f,

match each assertion with the statement that most closely approximates its meaning. Each statement may be

used only once.

Assertion

Statement

a) Completeness

b) Cutoff

c)

Existence and occurrence

d) Presentation and disclosure

e) Rights and obligations

f)

Valuation

1) There is such an asset.

2) The company legally owns the assets.

3) All assets have been recorded.

4) Transactions are recorded in the correct

accounting period.

5) Assets are recorded at proper amounts.

6) Assets are properly classified.

4. Auditors perform audit procedures to obtain audit evidence that will allow them to draw reasonable

conclusions as to whether the clients financial statements follow generally accepted accounting principles.

Match each audit procedure with its type. Each type of audit procedure is used; one is used twice.

Audit Procedures

Type of Audit Procedure

g) Prepare a flowchart of internal control

over sales.

h) Calculate the ratio of bad debt expense

to credit sales.

i)

Determine whether disbursements are

properly approved.

j)

Confirm accounts receivable.

k) Compare current financial information

with comparable prior periods.

7) Analytical procedures

8) Tests of controls

9) Risk assessment procedures (other than

analytical procedures)

10) Test of details of account balances,

transactions, or disclosures

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