Presentation on theme: "Problem 10-16, page 331 The following are 11 audit procedures taken from an audit program: Add the supplier balances in the accounts payable master file,"— Presentation transcript:
1Problem 10-16, page 331The following are 11 audit procedures taken from an audit program:Add the supplier balances in the accounts payable master file, and compare the total with the general ledger.Examine vendors’ invoices to verify the ending balance in accounts payable.Compare the balance in employee benefits expense with previous years’. The comparison takes the increase in the employee benefit rates into account.Discuss the duties of the cash disbursements bookkeeper with him or her, and observe whether he or she has responsibility for handling cash or preparing the bank reconciliation.Confirm accounts payable balance directly with vendors.Use generalized audit software to run a gap test on the cheques issued during the year. (Print a list of cheque numbers omitted from the normal cheque number sequencing.)Examine the treasurer’s initials on monthly bank reconciliations as an indication of whether they have been reviewed.Examine vendors’ invoices and other documentation in support of recorded transactions in the acquisitions journal.Multiply the commission rate by total sales, and compare the result with the commission expense.Examine vendors’ invoices and other supporting documents to determine whether large amounts in the repairs and maintenance account should be capitalized.Examine the initials on vendors’ invoices that indicate internal verification of pricing, extending, and footing by a clerk.Required:Indicate whether each procedure is a test of controls, an analytical procedure, or a test of details of balances.Identify the type of evidence for each procedure.
2Problem 10-16, Solution a. Procedure b. Type of Evidence 1. T of D of BRecalculation and Reperformance2.Inspection3.APAnalytical procedures4.Test of controlsInquiry and observation5.Confirmation6.Reperformance126.96.36.199.11.
3Problem 10-21, page 332The following are audit procedures from different transaction cyclesUse audit software to foot and cross-foot the cash disbursements journal, and trace the balance to the general ledger.Select a sample of entries in the acquisitions journal, and trace each one to a related vendors’ invoice to determine whether one exists.Examine documentation for acquisition transactions before and after the balance sheet date to determine whether they are recorded in the proper period.Inquire of the credit manager whether each account receivable on the aged trial balance is collectible.Compute inventory turnover for each major product, and compare with that of previous years.Confirm with lenders a sample of notes payable balances, interest rates, and collateral.Use audit software to foot the accounts payable trial balance, and compare the balance with the general ledger.Required:For each audit procedure, identify the transaction cycle being audited.For each audit procedure , identify the type of evidence.For each audit procedure, identify whether it is a test of control or substantive test (indicating whether it is a test of details of balances or an analytical procedure.)For each audit procedure, identify the related audit objective(s).Specifically assess the purpose of each audit procedure, as follows:For tests of control, state the risk (potential error) that is being assessed.For analytical procedures, state a possible result that you would expect.For tests of detail, state the type of material error that you would be quantifying.
4Problem 10-21, Solution a. b. c. d. 1. Acquisition and Payment RecalculationSubstantive (test of detail)Posting and summarization2. Acquisition and PaymentInspectionTest of control or Substantive (detail)Existence3. Acquisition and PaymentSubstantive (detail)Cutoff4. Sales and CollectionInquiryValuation5. Inventory and WarehousingAnalytical procedureSubstantive (AP)6. Capital Acquisition and RepaymentConfirmationExistence, Accuracy, Presentation and disclosure7. Acquisition and Payment
5e.1. There could be a calculation error and some amounts might not be posted to the general ledger, understating the accounts payable balance.2. There could be unauthorized payments or duplicate payments, overstating expenses and accounts payable.3. Accounts payable could be recorded in the incorrect period, either over or understating income or expenses.4. Accounts receivable might not be collectible, overstating income and understating the bad debt allowance.5. Inventory might be obsolete and cannot be sold, overstating assets.6. Incorrect notes payable information could be recorded in the accounts, or there could be inaccurate or incomplete disclosure of notes payable information in the financial statements and notes there to.7. Same as 1.
6Problem 12-21, page 406, Canadian 11th. Edition The following internal controls for the acquisition and payment cycle were selected from a standard internal control questionnaire:Vendors’ invoices are recalculated prior to payment.Approved price lists are used for acquisitions.Prenumbered receiving reports are prepared as support for purchases and are numerically accounted for.Dates on receiving reports are compared with vendors’ invoices before entry into the accounts payable system.The accounts payable system is updated, balanced, and reconciled to the general ledger monthly.Account classifications are reviewed by someone other than the preparer.All cheques are signed by the owner or the manager.The cheque signer compares data on the supporting documents with the cheques.All supporting documents are cancelled after entry.After they are signed, cheques are mailed by the owner or manager, or a person under his or her supervision.Required:For each control, state which transaction-related audit objective(s) is (are) applicable.For each control, write an audit procedure that could be used to test the control for effectiveness.For each control, identify a likely misstatement, assuming the control does not exist or is not functioning.For each likely misstatement, identify a substantive audit procedure to determine if the misstatement exists.
7Problem 12-21, Solution a. Objectives b. Procedure c. Misstatement d. Misstatement Procedure1. AccuracyExamine vendors’ invoices for indication of recalculationAn error in calculation of a vendors’ invoicesRecalculation of the vendors’ invoices2. AccuracyDetermine existence of approved price lists for acquisitionsUnauthorized prices could be paid for acquisitionsObtain prices from purchasing department and compare to vendors’ invoices3. Occurrence CompletenessAccount for a numerical sequence of receiving reportsUnrecorded acquisitions existConfirm accounts payable, especially vendors with small or zero balances4. TimingExamine vendors’ invoices for indication of comparisonCutoff errorsConfirm accounts payable5. Posting SummarizationExamine indication of reconciliation of the subsidiary ledger and control accountErrors in subsidiary records or control accountFoot subsidiary records and compare to control account6. ClassificationExamine vendors’ invoices for indication of internal verificationAccount classification errorsCompare vendors’ invoices to acquisitions journal for reasonableness of account classification7. OccurrenceExamine cancelled cheques for signatureInvalid or unauthorized paymentExamine supporting documents for appropriateness of expenditures8. Occurrence AccuracyExamine supporting documents for accuracy and appropriateness of expenditures9. OccurrenceExamine supporting documents for indication of cancellationDuplicate payment for an acquisitionExamine supporting documents for every payment to selected vendors10. OccurrenceObserve cheque mailing procedures and inquire about normal proceduresEmployee takes signed cheques and changes payee nameCompare payee name on cancelled cheque to supporting documents