Part 7 Audit Philosophy and Direction of Tests (30 pointa) We conaidered broad "accounting syatems involving the sales testing involving the test for overstatement or understatement. Requirements: 1. Consider THREE ADJACENT pieces of the gales cycle [do NOT use CeLe AND Inventory observation to iilustrate the direction of and diacuss the proper direction of testing for t of be used to Sales Order"1 Sales for oVERstatement 2. In a physical inventory observation, discuss the proper direction when taking test counts to test for OVERatatemer inventory 3. The doubie-entry accounting ayatem conceptually can gain audit efficiencies. Use "journal entries how (A) Accounts receivable is tested tor understatement by athering evidence about another account: and (B) how a lability is tested Eor overstatement by gathering evidence about another account 4. What type of evidence is used to test sales for overstatement? 1. Sales for ovERstatement 2. Physical Inventory testing for OVERstatement 3A. Journal entries & Discussion. Accounts receivable for UNDERstatement 3B. Journal entries & Discussion. A liability for OVERstatement. 4. Type of evidence: Sales for OVERstatement