Question

The following audit procedures are included in the audit program of Holland​ Equipment, Inc.

1. Use audit software to examine journal entries in the​ sales, cash​ receipts, purchases, cash​ disbursements, payroll, and general journals for any amounts exceeding​ $1 million and for any entries with unusual account codings. Review related supporting documentation for reasonableness.

2. Examine the estimate for the Allowance for Doubtful Accounts recorded in the​ prior-year audited financial statements. Obtain information about receivable writeoffs recorded during the current fiscal year for receivables included in the​ prior-year audited financial statements and obtain other information to perform a hindsight evaluation of the reasonableness of the allowance account included in the​ prior-year audited financial statements.

3. Continue to observe inventories at​ Holland's two main distribution​ centers, but for this year examine inventories at its two smaller warehouses not examined in prior years. Management does not expect you to examine those additional warehouses.

4. During the current​ year, Holland has entered into a joint venture partnership with a company that serves similar​ customers, but makes an entirely different product than Holland. Inquire of management about the business rationale for this transaction.

5. Review for reasonableness any manual journal entries made by management to adjust the​ computer-generated accounting records.

What is the overarching purpose for performing all of these​ procedures?

These procedures are examples of techniques auditors employ to ____ (address the risk from management and audit personnel having incentives to commit fraud, address the risk of material misstatement due to fraud, or identify and assess the risks of corporate misstatement due to immaterial errors).

Most of the procedures are intended to directly _____ (identify weaknesses in the auditor's report on internal control over financial reporting, identify the risk of any material misstatement on the financial statements, or address the risk of management override of controls).

Fill in the blanks with the bolded answers in the parentheses.

Answer 1

These procedures are examples of techniques auditors employ to address the risk of material misstatement due to fraud.

Most of the procedures are intended to directly identify the risk of any material misstatement on the financial statements.