Question

13-26 (Objectives 13-1, 13-2, 13-5) The following are audit procedures from different transaction cycles:

1. Examine sales invoices for evidence of internal verification of prices, quantities, and extensions.

2. Select items from the client’s perpetual inventory records and examine the items in the company’s warehouse.

3. Use audit software to foot and cross-foot the cash disbursements journal and trace the balance to the general ledger.

4. Examine loan agreements for key information such as interest rate, payment schedules, collateral, and restrictive covenants to determine whether management has properly included required disclosures in the footnotes to the financial statements.

5. Select a sample of entries in the acquisitions journal and trace each one to a related vendor’s invoice to determine whether one exists.

6. Examine documentation for acquisition transactions before and after the balance sheet date to determine whether they are recorded in the proper period.

7. Inquire of the credit manager whether each account receivable on the aged trial balance is collectible.

8. Compute inventory turnover for each major product and compare with previous years.

9. Confirm a sample of notes payable balances, interest rates, and collateral with lenders.

10. Use audit software to foot the accounts receivable trial balance and compare the balance with the general ledger.

Required

1. For each audit procedure, identify the transaction cycle being audited.

2. For each audit procedure, identify the type of evidence.

3. For each audit procedure, identify whether it is a test of control or a substantive test.

4. For each substantive audit procedure, identify whether it is a substantive test of transactions, a test of details of balances, or a substantive analytical procedure.

5. For each test of control or substantive test of transactions procedure, identify the transaction-related audit objective or objectives being satisfied.

6. For each substantive analytical procedure or test of details of balances procedure, identify the balance-related audit objective or objectives being satisfied.

Answer 1

Procedure	a	b	c	d	e	f
1	Acquisition and Payment	Recalculation	Substantive	substantive test of transactions	Posting and Summarization
2	Acquisition and Payment	Inspection	Test of Control or Substantive	substantive test of transactions		Detail Tie-in
3	Acquisition and Payment	Inspection	Test of Control or Substantive	substantive test of transactions	Occurrence
4	Acquisition and Payment	Inspection	Substantive	test of details of balances		Cutt off
5	Sales and Collection	Inquiry	Substantive	test of details of balances		Realizable Value
6	Inventory and Warehousing	Analytical Procedure	Substantive	analytical procedure		Realizable Value
7	Capital Acquisition and Repayment	Confirmation	Substantive	test of details of balances		Existence, Accuracy
8	Sales and Collection	Recalculation	Substantive	test of details of balances		Detail Tie-in