Johnson is an audit senior of a CPA firm. He is assigned to the audit of inventory fora large retail client which operates throughout the city with more than 50 stores.However, the internal controls of this client are effective as assessed in the past andJohnson wishes to rely on them. He asks his assistant Peter to perform the followingtests of controls, among others.1. Account for a sequence of shipping documents such as bills of lading andreceiving reports.2. Inquire management of the procedures to identify obsolete inventory items.3. Read contracts of sales to determine whether goods are on consignment.4. Observe the compilation of inventory list for taking inventories.Required:For each of the above tests of controls, identify the balance-related audit objective(s),the possible misstatements if the controls do not work satisfactorily and an audit testthat could discover the misstatements.

Answer: Test of controls is the type of audit procedure that we perform in order to evaluate whether…

Johnson is an audit senior of a CPA firm. He is assigned to the audit of inventory for a large retail client which operates throughout the city with more than 50 stores. However, the internal controls of this client are effective as assessed in the past and Johnson wishes to rely on them. He asks his assistant Peter to perform the following tests of controls, among others.

Johnson is an audit senior of a CPA firm. He is assigned to the audit of inventory for a large retail client which operates throughout the city with more than 50 stores. However, the internal controls of this client are effective as assessed in the past and Johnson wishes to rely on them. He asks his assistant Peter to perform the following tests of controls, among others.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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