REVIEW QUESTIONS 13-1 (ORJECTIvE Ia-) What is the purpose of risk assessment procedures and how do differ from the four other types of audit tests? evi- 13-2 OJECTIVE 13-n Can a system additional evidence required for the purpose. h alone provide sufficient a operating effectively? If no, state the factors affecting the amount of 13-3 (ORJECTIVE 13-I1) Distinguish between a test of control and a substantive test of trans- actions. Give two examples of each. 13-4 (ORJECTIVES 13-1,13-3) State a test of control audit procedure to test the the following control: Approved wage rates are used in calculating employees' earnings State a substantive test of wage rates are actually used in calculating employees' earnings. 13-5 (OBJECTIVE 13-1) A considerable portion of the tests of controls and substantive tests of transactions are performed simultaneously as a matter of audit convenience. But the substantive tests of transactions procedures and sample size, in part, depend on the results of the tests of controls. How can the auditor resolve this apparent transactions audit procedure to determine whether approved 13-6 (OBJECTIVE 13-I) Distinguish between substantive tests of transactions and tests of details of balances. Give one example of each for the acquisition and payment cycle 13-7 (OBJECTIYESs 13-1, 3-2) Explain how the calculation and comparison to previous years of the gross margin percentage and the ratio of accounts receivable to sales are related to the confirmation of accounts receivable and other tests of the accuracy of accounts 13-8 (OBJECTIVES 13-2-IM) Evaluate the following statement: Tests of sales and cash receipts transactions are such an essential part of every audit that I like to perform them as near the end of the audit as possible. By that time I have a fairly good understanding of the client's business and its internal controls because confirmations, cutoff tests, and other procedures have already been completed. 13-9 (oRJECTIVE 13-2) The auditor of Chan & Lee CPA identified two exceptions, out of two hundred samples, in inspecting whether there were initials of the person who per- formed credit approval for new customers in the audit of the sales and collection cycle. The auditor c that these two exceptions were financial statement misstatements and therefore substantive tests should be extensively performed for this cycle. Comment on the auditor's conclusion with reference to the relationship between tests of controls and substantive tests. 13-10 (OBJECTIVE 13-2) Comment on this statement: "Physical examination, confirma- tion and reperformance are important types of evidence that must be performed in tests of controls, substantive tests of transactions, substantive analytical procedures and tests of details of balances.". 13-11 (OBJECTIVE 13-2) Rank the following types of tests from most costly to least costly substantive analytical procedures, tests of details of balances, risk assessment procedures tests of controls, and substantive tests of transactions. 13-12 (OBJECTIVE 13-3) Assume that the client's internal controls over the recording and classifying of fixed asset additions are considered deficient because the individual sible for recording new acquisitions has inadequate technical training and limited experi- ence in accounting. How will this situation affect the evidence you should accumulate in auditing fixed assets as compared with another audit in which the controls are excellent? Be as specific as possible. 13-13 (OBJECTIVE 13-3) Design an evidence mix for a company with some controls and an initial assessment of low inherent risk but was subsequently assessed to have material weaknesses in its control. Justify the cost of such audit. respon