DQ 1: The following are various management assertions related to sales and account receivable. Required: i) For each assertion, indicate whether it is an assertion about classes of transactions and events or an assertion about account balances. NAME OF ASSERTION ii) Indicate the name of the assertion made by management. CATEGORY OF MANAGEMENT MANAGEMENT ASSERTION ASSERTION a. Recorded accounts receivable exist. b. Disclosures related to sales are relevant and understandable. c. Recorded sales transactions have occurred. d. There are no liens or other restrictions on accounts receivable. e. All sales transactions have been recorded. f. Receivables are appropriately classified as to trade and other receivables in the financial statements and are clearly described. g. Sales transactions have been recorded in the proper period. h. Accounts receivable are recorded at the correct amounts. i. Sales transactions have been recorded in the appropriate accounts. j. All required disclosures about accounts receivables have been made. k. All accounts receivable have been recorded. 1. Disclosures related to receivables are at the correct amounts. m. Sales transactions have been recorded at the correct amounts. DQ 3: The following are various audit procedures performed to satisfy specific transaction- related audit objectives as discussed in Chapter 6. Required: i) ii) Identify the type of audit evidence used for each audit procedure. Identify the general transaction-related audit objective or objectives satisfied by each audit procedure. TYPE OF AUDIT EVIDENCE TRANSACTION- RELATED AUDIT OBJECTIVE AUDIT PROCEDURE 1. Trace from receiving reports to vendors' invoices and entry in the acquisitions journal. 2. Add the sales journal for the month of July and trace amounts to the general ledger. 3. Examine expense voucher packages and related vendors' invoices for approval of expense account classification. 4. Observe opening of cash receipts to determine that cash receipts are promptly deposited and recorded. 5. Ask the accounts payable clerk about procedures for verifying prices, quantities, and extensions on vendors' invoices. 6. Vouch entries in sales journal to sales invoices and related shipping documents. TYPE OF AUDIT EVIDENCE TRANSACTION- RELATED AUDIT OBJECTIVE AUDIT PROCEDURE 7. Examine the footnotes about the company's policies for recording revenue transactions to determine whether the disclosures are reasonable. DQ 2: Below are 12 audit procedures. Classify each procedure according to the following types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) observation, (5) inquiry of the client, (6) recalculation, (7) reperformance, and (8) analytical procedure. Type of Evidence Audit Procedures 1. Watch client employees count inventory to determine whether company procedures are being followed. 2. Count inventory items and record the amount in the audit files. 3. Trace postings from the sales journal to the general ledger accounts. 4. Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of gross margin relative to the preceding year. 5. Obtain information about the client's internal controls by asking questions of client personnel. 6. Trace column totals from the cash disbursements journal to the general ledger. 7. Examine a piece of equipment to make sure a recent purchase of equipment was actually received and is in operation. 8. Review the total of repairs and maintenance for each month to determine whether any month's total was unusually large. 9. Compare vendor names and amounts on purchase invoices with entries in the purchases journal. 10. Foot entries in the sales journal to determine whether they were correctly totaled by the client. 11. Make a surprise count of petty cash to verify that the amount of the petty cash fund is intact. 12. Obtain a written statement from the client's bank stating the client's year-end balance on deposit