1 Examine the financial report to determine whether all related party loans are properly presented 2 Recalculate depreciation figure 3 Trace sales recorded in the sales journal to shipping documents 4 Examine sales invoices for initials to indicate that prices and extensions have been checked 5 Check cost of closing inventory to subsequent sales prices 6 Confirm loan balances with financial institutions
(a) Audit tests include tests of controls and substantive procedures. Substantive procedures can
be divided into substantive analytical procedures, tests of balances, tests of transactions and
tests of disclosures.
Required:
For each test in the table below, select the type of audit test it represents. ( 30-50)
words)
Test Type of test ?
1 Examine the financial report to determine whether all
related party loans are properly presented
2 Recalculate
3 Trace sales recorded in the sales journal to shipping
documents
4 Examine sales invoices for initials to indicate that prices
and extensions have been checked
5 Check cost of closing inventory to subsequent sales prices
6 Confirm loan balances with financial institutions
(b) You are the audit senior on the audit of Marsa Ltd, a large manufacturing company, for the
year ended 30 June 2020. It is now 16 July 2020 and you are reviewing the audit working papers
prepared by the audit assistant, Trena Berk. You notice the following matters:
(i) As part of her work on subsequent events since balance date, Trena noted that there
were a large number of returns in July of product XLP. However, as this product was
first sold in June and represented only 1 per cent of sales for the year, she concluded
that the amount was immaterial and that no further work was necessary.
(ii) Trena selected 20 invoices to test the control that the salesclerk checks that the prices
agree with the authorised price list. She found three instances where the salesclerk
had not signed the ‘prices checked’ box on the invoice. The sales manager explained
that the salesclerk always checks the prices, but sometimes forgets to sign the box. As
the prices on all the invoices agreed with the authorised price list, Trena concluded
that the control was operating satisfactorily.
Required:
For each of the two scenarios presented above, indicate whether you believe that sufficient
appropriate audit evidence was obtained to support the conclusions reached. Give reasons for
your decision. (130- 150 words)
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