Part A: Substantive Procedures and the Financial Statement

Listed below are several misstatements of inventory, accounts payable, and accrued liabilities accounts. For each of the following misstatements, design a substantive audit procedure that provides reasonable assurance of detecting the misstatement.

1. Bonuses awarded to senior management have not been recorded.

2. Several suppliers that the company had not purchased from prior to this year were omitted from the accounts payable listing.

3. When employees counted the physical inventory, included were a number of items that were consigned to the company by a client company.

4. There was no disclosure in the nancial statements of a material account payable to a related party.

5. The year-end payroll accrual was understated.

6. One-third of the dollar amount of diamond jewelry inventory is actually cubic zirconia or white sapphires.

7. The accounts payable prepared checks to pay a vendors invoice twice. The invoice is still shown as an outstanding account payable.

8. Company personnel, conducting an inventory, informed the auditors that underground petroleum tanks contained high-octane gasoline when they actually contained water.

9. The accounting department of the client failed to record warranty expenses incurred after year-end applicable to prior year sales.

10. Inventory in one remote area of the warehouse was overlooked and thus not included in the clients physical inventory count.