Question

The auditors of SSC Company, a nonpublic company, are working on both audit objectives for the various accounts and documentation requirements. Parts (a) through d) of this question relate to objectives. The auditors have established the objectives listed below as a part of the audit. Substantive Procedures Obtain a trial balance of payables and reconcile with the accounts payable subsidiary ledger. Vouch sales from throughout the year. 8. Vouch purchases recorded after year-end. 4. Vouch sales recorded shortly before year-end. 5. Vouch major warranty expenses paid during 20X8_ 6. Inquire of management concerning the existence of related party transactions 7 Test the computations made by the client to set up the accrual 8 Test the reasonableness of general and administrative labor rates. 9. Confirm outstanding year-end balances of payables. 10. Confirm warranty expenses payable as of year-end. For each objective, select a substantive procedure (from the list of substantive procedures) that will help achieve that objective Each of the procedures may be used once, more than once, or not at all Audit Objectives < Prev 306 Next >

Answer 1

	Audit Objectives	Substantive Procedures
a.	Determine the existence of year-end recorded accounts payable and that the client has obligations to pay these liabilities.	9
b.	Establish the completeness of recorded accounts payable.	3
c.	Determine that the presentation and disclosure of accounts payable are appropriate.	6
d.	Determine that the valuation of warranty loss reserves is measured in accordance with GAAP.	7

Substantive Procedures selected:

9. Confirm outstanding year-end balances of payables.

3. Vouch purchases recorded after the year-end.

6. Inquire of management concerning the existence of related party transactions.

7. Test the computations made by the client to set up the accrual.

Explanations:

a. - 9: Confirmations received from the outside suppliers will ensure that the amounts are correct and are payable by clients confirming the same.

b. - 3: Vouching the purchases recorded after year-end will help in idnetifying any purchases that should have been recorded prior to the year-end and thereby ensure completeness of the accounts payable.

c. - 6: Any related party transactions which are material should be disclosed. Inquiries with management will help identify such parties and transactions.

d. - 7: The computations made by the client for recording the warranty loss reserve should be tested to ensure accuracy of the same and that the same are in accordance with GAAP.