Exhibit 6.5 Types of Audit Procedures Categories of Audit Procedures Purpose Tests of controls Evaluate the operating effectiveness of controls Types of Audit Procedures Typically Performed Inspection of documentation Observation Reperformance Examples of Audit Procedures Review client-prepared internal control documentation Select purchase transactions and review documentation for required approval Observe whether controls designed to limit access to a secure area (e.g., ID card need to access storage room) are functioning Reperform a reconciliation performed by client personnel Inquire of management and supervisory personnel about their control-related responsibilities Review shipping documents as evidence of a sale having occurred Inquiry Substantive procedures Inspection of documentation Determine whether material misstatements exist in the finan- cial statements Inspection of assets External confirmation Recalculation Analytical procedures Tour the manufacturing facility and inspect client's equipment Obtain confirmations from client's customers regarding amount owed by the customer to the client Recalculate the total amount included on a sales invoice Estimate the expected amount of interest income to be recorded by the client and fol- low up on significant unexpected differences between expectation and client's recorded balance Scan the sales journal to identify unusual transactions posted to the sales account and follow up on the transactions Inquire of client management as to its valua- tion of the allowance for doubtful accounts Scanning Inquiry Refer to Exhibit 6.5 to identify the nine types of audit procedures used as part of the audit evidence-gathering process. Following is a list of audit procedures performed. For each procedure listed as a through p. below), classify the evidence gathered according to one (or more, if applicable) of the audit procedure types indicated in Exhibit 6.5 and identify the assertion(s) being tested. Organize your answer as follows: j. Develop a spreadsheet to calculate an independent estimate of the client's warranty liability (reserve) based on production data and current warranty repair expenditures. k. Meet with the client's internal legal department to determine its assessment of the potential outcome of pending litigation regarding a patent infringement suit against the company. Review all major past-due accounts receivable with the credit manager to determine whether the client's allowance for doubtful accounts is adequate. m. Make test counts of inventory items counted by client personnel. n. Obtain information about the client's processing system and associated controls by asking the client's personnel to fill out a questionnaire. 0. Examine board of directors' minutes for the approval of a major bond issued during the year. p. Have the client's outside law firm send a letter directly to the auditor providing a description of any differences between the lawyer's assessment of litigation and that of the client. Exhibit 6.5 Types of Audit Procedures Categories of Audit Procedures Purpose Tests of controls Evaluate the operating effectiveness of controls Types of Audit Procedures Typically Performed Inspection of documentation Observation Reperformance Examples of Audit Procedures Review client-prepared internal control documentation Select purchase transactions and review documentation for required approval Observe whether controls designed to limit access to a secure area (e.g., ID card need to access storage room) are functioning Reperform a reconciliation performed by client personnel Inquire of management and supervisory personnel about their control-related responsibilities Review shipping documents as evidence of a sale having occurred Inquiry Substantive procedures Inspection of documentation Determine whether material misstatements exist in the finan- cial statements Inspection of assets External confirmation Recalculation Analytical procedures Tour the manufacturing facility and inspect client's equipment Obtain confirmations from client's customers regarding amount owed by the customer to the client Recalculate the total amount included on a sales invoice Estimate the expected amount of interest income to be recorded by the client and fol- low up on significant unexpected differences between expectation and client's recorded balance Scan the sales journal to identify unusual transactions posted to the sales account and follow up on the transactions Inquire of client management as to its valua- tion of the allowance for doubtful accounts Scanning Inquiry Refer to Exhibit 6.5 to identify the nine types of audit procedures used as part of the audit evidence-gathering process. Following is a list of audit procedures performed. For each procedure listed as a through p. below), classify the evidence gathered according to one (or more, if applicable) of the audit procedure types indicated in Exhibit 6.5 and identify the assertion(s) being tested. Organize your answer as follows: j. Develop a spreadsheet to calculate an independent estimate of the client's warranty liability (reserve) based on production data and current warranty repair expenditures. k. Meet with the client's internal legal department to determine its assessment of the potential outcome of pending litigation regarding a patent infringement suit against the company. Review all major past-due accounts receivable with the credit manager to determine whether the client's allowance for doubtful accounts is adequate. m. Make test counts of inventory items counted by client personnel. n. Obtain information about the client's processing system and associated controls by asking the client's personnel to fill out a questionnaire. 0. Examine board of directors' minutes for the approval of a major bond issued during the year. p. Have the client's outside law firm send a letter directly to the auditor providing a description of any differences between the lawyer's assessment of litigation and that of the client