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: a. Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of the balance for cost of goods sold. b. Trace a sales transaction from the origination of an incoming sales order to the shipment of merchandise to an invoice and to the proper recording in the sales journal. C. Test the accuracy of the sales invoice by multiplying the number of items shipped by the authorized price list to determine extended cost. Foot the total and reconcile it with the total invoiced. d. Select recorded sales invoices and trace the corresponding shipping documents to verify the existence of goods shipped. e. Examine canceled checks returned with the client's January bank statement as support of outstanding checks listed on the client's December year-end bank reconciliation f. Perform inspection and independently count a sample of the client's marketable securities held in a safe deposit box g. Tour the plant to determine that a major equipment acquisition was received and is in working condition h. Review a lease contract to determine the items it covers and its major provisions. 1. Request a statement from a major customer as to its agreement or disagreement with a year end receivable balance shown to be due to the audit 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: a. Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of the balance for cost of goods sold. b. Trace a sales transaction from the origination of an incoming sales order to the shipment of merchandise to an invoice and to the proper recording in the sales journal. C. Test the accuracy of the sales invoice by multiplying the number of items shipped by the authorized price list to determine extended cost. Foot the total and reconcile it with the total invoiced. d. Select recorded sales invoices and trace the corresponding shipping documents to verify the existence of goods shipped. e. Examine canceled checks returned with the client's January bank statement as support of outstanding checks listed on the client's December year-end bank reconciliation f. Perform inspection and independently count a sample of the client's marketable securities held in a safe deposit box g. Tour the plant to determine that a major equipment acquisition was received and is in working condition h. Review a lease contract to determine the items it covers and its major provisions. 1. Request a statement from a major customer as to its agreement or disagreement with a year end receivable balance shown to be due to the audit client