Auditing & Assurance Services: A Systematic Approach (Irwin Accounting)
10th Edition
ISBN: 9780077732509
Author: William F Messier Jr, Steven M. Glover Associate Professor, Douglas F. Prawitt Associate Professor
Publisher: McGraw-Hill Education
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Chapter 16, Problem 16.26P
To determine
Introduction:The
To select: The audit procedure that the auditor most likely would perform to gather the supporting evidences.
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Which of the following types of documentary evidence should the auditor consider the most reliable?a. Sales invoice created by the client with the support of proof of delivery from an outside delivery serviceb. Confirmation of debt balances sent and returned directly to the auditorc. Check made by the company and includes a sign of approval of the party receiving the money, which is included in the bank statement sent directly to the auditord. An audit list prepared by the client controller and reviewed by the client treasurer.
Audit Objectives and Procedures for Accounts Receivable. In the audit of accounts receivable, auditors develop specific audit assertions related to the receivables. They then design specific substantive procedures to obtain evidence about each of these assertions.Here is a selection of accounts receivable assertions:a. Accounts receivable represent all amounts owed to the client company at the balance sheet date.b. The client company has a legal right to all accounts receivable at the balance sheet date.c. Accounts receivable are stated at net realizable value.d. Accounts receivable are properly described and presented in the financial statements.Required:For each of these assertions, select the following audit procedure (numbered 1–7) that is best suited for the audit plan. Select only one procedure for each audit objective. A procedure may be selected once, not at all, or more than once.1. Analyze the relationship of accounts receivable and sales and compare with relationships for…
Dodge, CPA, is auditing the financial statements of amanufacturing company with a significant amount of trade accounts receivable. Dodgeis satisfied that the accounts are correctly summarized and classified and that allocations,reclassifications, and valuations are made in accordance with GAAP. Dodge is planningto use accounts receivable confirmation requests to obtain sufficient appropriate evidenceas to trade accounts receivable.a. Identify and describe the two forms of accounts receivable confirmation requestsand indicate what factors Dodge will consider in determining when to use each.b. Assume that Dodge has received a satisfactory response to the confirmation requests.Describe how Dodge can evaluate collectibility of the trade accounts receivable.c. What are the implications to a CPA if during an audit of accounts receivable someof a client’s trade customers do not respond to a request for positive confirmation oftheir accounts?d. What auditing steps should a CPA perform if there…
Chapter 16 Solutions
Auditing & Assurance Services: A Systematic Approach (Irwin Accounting)
Ch. 16 - Prob. 16.1RQCh. 16 - Prob. 16.2RQCh. 16 - Prob. 16.3RQCh. 16 - Prob. 16.4RQCh. 16 - Prob. 16.5RQCh. 16 - Prob. 16.6RQCh. 16 - Prob. 16.7RQCh. 16 - Prob. 16.8RQCh. 16 - Prob. 16.9RQCh. 16 - Prob. 16.10RQ
Ch. 16 - Prob. 16.11RQCh. 16 - Prob. 16.12MCQCh. 16 - Prob. 16.13MCQCh. 16 - Prob. 16.14MCQCh. 16 - Prob. 16.15MCQCh. 16 - Prob. 16.16MCQCh. 16 - Prob. 16.17MCQCh. 16 - Prob. 16.18MCQCh. 16 - Prob. 16.19MCQCh. 16 - Prob. 16.20MCQCh. 16 - Prob. 16.21MCQCh. 16 - Prob. 16.22MCQCh. 16 - Prob. 16.23MCQCh. 16 - Prob. 16.24PCh. 16 - Prob. 16.25PCh. 16 - Prob. 16.26PCh. 16 - Prob. 16.27PCh. 16 - Prob. 16.28PCh. 16 - Prob. 16.29PCh. 16 - Prob. 16.30P
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- Which of the following procedures would provide the most reliable audit evidence?a. Inquiries of the client’s internal audit staff.b. Inspection of prenumbered client purchase orders filed in the vouchers payable department.c. Inspection of vendor sales invoices received from client personnel.d. Inspection of bank statements obtained directly from the client’s financial institution.arrow_forwardGIven the situation that you are an auditor of GZ Company and you were asked to provide the following(s): a. Explain the audit objectives for the management assertion of Bank, Cash, Inventories, Revenue and Payment. b. Explain 5 Audit procedures used in the process of acquiring evidence to test the management assertion for Bank, Cash, Inventories, Revenue and Payment.arrow_forwardWe discussed a number of assertions about account balances, classes of transactions, and disclosures contained in financial statements. These assertions include existence and occurrence, rights and obligations, completeness, cutoff, valuation and disclosure. When we gather audit evidence, we gather evidence to support financial statement assertions. Required: Describe how each of these assertions relates to Accounts Receivable. Conor & Evan, CPAs are the auditors for Mojito, Inc. In the course of the audit, Conor & Evan select a sample of Mojito’s customers from the Accounts Receivable subsidiary ledger and send letters to them asking for confirmation of the Accounts Receivable balances owed to Mojito, Inc. Describe which of the assertions will be supported by the evidence obtained from the confirmations sent to Mojito’s customers. Explain how the evidence supports the assertion and, if it does not support the assertion, why notarrow_forward
- Which of the following substantive procedures would auditors most likely perform to obtain evidence about the occurrence of subsequent events?a. Recompute a sample of large-dollar transactions occurring after the date of the financial statements for arithmetic accuracy.b. Investigate changes in shareholders’ equity occurring after the date of the financial statements.c. Send confirmations to vendors with whom the client normally does business but for which no balance in accounts payable is noted.d. Confirm bank accounts established after the date of the financial statements.arrow_forwardThe auditors have determined that each of the following objectives will be a part of the audit of SSC Corporation. While several procedures will ordinarily address an audit objective, select the procedure most directly related to the audit objective. Each procedure may be used once, more than once, or not at all. 1. All receivables that should be recorded are recorded as of year-end. 2. Recorded receivables are at appropriate net realizable values. 3. Recorded receivables exist. 4. The client has rights to recorded year-end receivables. 5. The presentation and disclosure of receivables are adequate. Trace a sample of sales invoiced from late in December to the sales journal and to postings in accounts receivable and sales amounts. Review the aged trial balance for significant past due accounts. Review board of director minutes and underlying contracts and sales terms with customers. Vouch year-end accounts…arrow_forwardAnalyze the risks associated with auditing accounts payable. Explain the process of auditing accounts payable using confirmations. Determine why third parties are important to the audit of debt and equity. How do auditors interact with third parties to gain audit evidence when auditing debt and equity? Why is it important that auditors determine if the client is complying with debt provisions?arrow_forward
- Assume that your audit partner asks you to design detailed substantive testing programs for accounts receivable and sales of Air New Zealand. Your partner also asks you to incorporate specific analytical procedures and tests of detail (i.e. direct tests on balances and tests of transactions of a balance).Required:Design/develop a substantive audit tests program and explain & justify your audit program in terms of audit objectives (also called ‘audit assertions’)Questiona. Trade and Other Receivables and Operating Revenue: You have assessed the inherentrisk of management distortion, and overstatement of Revenues, to be high this yearbecause senior management is trying to obtain an extended loan from their financialinstitution. However, the only weakness revealed in the testing of controls is a lack ofreview of adjusting journal entriesarrow_forwardSelect from the following the main object of an audit. a. Expression of expert opinion b. Detection and Prevention of fraud and error c. Preparation of financial statements d. Examination of books of accountsarrow_forwardThe following are specific balance-related audit objectives applied to the audit of accounts receivable (a. through i.) and management assertions about account balances (1 through 6). The list referred to in the specific balance-related audit objectives is the list of the accounts receivable from each customer at the balance sheet date. i (Click the icon to view the audit objectives.) i (Click the icon to view the management assertions.) Requirement For each specific balance-related audit objective, identify the appropriate management assertion. (Hint: See table.) Specific balance-related audit objective There are no unrecorded receivables. b. Uncollectible accounts have been provided for. C. Receivables that have become uncollectible have been written off. d. All accounts on the list are expected to be collected within 1 year. The total of the amounts on the accounts receivable listing agrees with the general ledger balance for accounts receivable. a. e. Management assertionarrow_forward
- In including an audit of financial statements , the overall objectives are the following, EXCEPT A. To conduct a critical, detailed and systematic examination of all the account balances in the financial statements, as the related document records , procedures and controls B. To obtain reasonable assurance whether financial statement as a whole are free from material misstatement whether du to fraud or error C. To report on the financial statements and communicate as required by the PSAs in accordance with the auditor’s findings D. To enable the auditor to express an opinion on whether the financial statements are prepared, in all material respects in accordance with the applicable financial reporting frameworkarrow_forwardAnalytical procedures are an important part of the audit process and consist of the evaluation of financial information by the study of plausible relationships among financial and nonfinancial data. Analytical procedures may be done during planning, as a substantive test, or as a part of the overall review of an audit. The following are various statements regarding the use of analytical procedures: Should focus on enhancing the auditor’s understanding of the client’s business and the transactions and events that have occurred since the last audit date Should focus on identifying areas that may represent specific risks relevant to the audit Require documentation in the working papers of the auditor’s expectation of the ratio or account balance Generally use data aggregated at a lower level than the other stages Should include reading the financial statements and notes to consider the adequacy of evidence gathered Not required during this stage Involve reconciliation of…arrow_forwardWhich of the following types of documentary evidence should the auditor consider to be the most reliable? Select one: a. A sales invoice issued by the client and supported by a delivery receipt from an outside trucker. b. Confirmation of an account payable balance mailed by and returned directly to the auditor c. An audit schedule prepared by the client’s controller and reviewed by the client’s treasurer. d. A check, issued by the company and bearing the payee’s endorsement, that is included with the bank statements mailed directly to the auditorarrow_forward
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