The purpose of substantive testing is to verify the management assertions of account balances and class of transactions. Consider the following unrelated audit tests, an auditor performed for the audit of the
financial statements of a client with a fiscal year end of December 31, 2016.
For each of the three audit procedures listed below, identify the primary management assertionbeing tested, name the specific audit procedurebeing used, and state the quality of the audit evidence obtained (high, moderate, or low), explaining why the evidence is the quality level you specify.
(1 mark for the correct management assertion, 1 mark for the correct type of procedure,1 mark for identifying the quality of evidence as high, moderate or low, 1 mark for a explaining the recommended quality of evidence).(Only identify the main management assertion and the main type of procedure)
Organize your answer with these headings:
Management assertion Audit procedure Quality of audit evidence
a. (4 marks)
Vouched additions to the property, plant and equipment sub-ledger to the vendor invoice.
b. (4 marks)
Calculated the wages expense by multiplying the average weekly payroll paid to non-salaried employees times the number of employees. Discussed variance greater than 10% with management.
c. (4 marks)
Performed test counts on inventory items selected from the audit clients inventory listing.
|
Nature |
Management assertion |
Audit Procedure |
Quality of audit evidence |
|
A) Addition to Property, Plant & equipment |
Account Balance assertion |
Inspection |
High- Inspection of records or documents(vouching) |
|
B) Wages expenses |
Transaction level assertion |
Analytical Procedures |
Low- Analytical procedure to assess the reasonableness that records in the Financial statement. |
|
C) Performed test counts on inventory |
Account Balance assertion |
Observation |
High- Verification of the physical presence of the inventory items |
The purpose of substantive testing is to verify the management assertions of account balances and class...
Question 2 (18 marks) The purpose of substantive testing is to verify the assertions made by management in the financial statements. Consider the following unrelated audit tests, which a CPA performed for the audit of the financial statements of a client with a fiscal year-end of December 31, 2017. Required For each of the six audit procedures listed below, identify the primary management assertion being tested and the account balance being verified, name the specific audit procedure being used (e.g....
Question: Question 29 Assertions about classes of transactions and events typically include _______. -completeness, accuracy, and valuation -existence, rights, and cutoff -existence, rights, and obligations -occurrence, cutoff, and completeness Question 30 Assertions about account balances at year-end typically include _______. -existence, occurrence, and cutoff -existence, completeness, and allocation -existence, completeness, and rights and obligations -accuracy, valuation, and occurrence Question 31 Assertions about presentation and disclosure typically include _______. -cutoff, presentation, and disclosure -completeness, accuracy and valuation, and classification and understandability...
DQ 1: The following are various management assertions related to sales and account receivable. Required: For each assertion, indicate whether it is an assertion about classes of transactions and events or an assertion about account balances. Indicate the name of the assertion made by management. MANAGEMENT ASSERTION CATEGORY OF MANAGEMENT ASSERTION NAME OF ASSERTION a. Recorded accounts receivable exist. b. Disclosures related to sales are relevant and understandable. c. Recorded sales transactions have occurred. d. There are no liens or...
Following are the four assertions about account balances that can be applied to the audit of a company’s PP&E, including assets the company has constructed itself: existence, rights and obligations, completeness, and valuation and allocation. Required: For each of the following substantive procedures, (1) cite one assertion most closely related to the evidence the procedure will produce (the primary assertion) and (2) when appropriate, cite one or more other assertions that also are related to the evidence the procedure will...
Chapter 5 & 6- Basics of the Audit Understand the different types of procedures (analytics, sampling, year end, interim work)- what they mean, being able to identify examples. (If I give you a procedure can you determine if it is an analytical procedure, work performed at interim, etc.) Understanding the audit risk model- what it means to asses risk as high, moderate, low, or maximum. (Do you do more or less work) (If I change one part of the formula...
Chapter 5 & 6- Basics of the Audit Understand the different types of procedures (analytics, sampling, year end, interim work)- what they mean, being able to identify examples. (If I give you a procedure can you determine if it is an analytical procedure, work performed at interim, etc.) Understanding the audit risk model- what it means to asses risk as high, moderate, low, or maximum. (Do you do more or less work) (If I change one part of the formula...
Assertions: Evidence Types Existence Occurrence Accuracy Classification Cutoff Completeness Valuation/Allocation Rights/Obligations Presentation Inspection of documents/records Inspection of tangible assets Observation Scanning evidence Inquiry Confirmation Reperformance Recalculation Analytical Evidence Part 2: Assume you are the audit team for the audit of Waren Sports Supply (a client with a traditional information system, which you should be familiar with). Imagine that this is the first time you’ve audited them, so you need to develop your own audit programs to make sure important assertions...
Question 4 (20 marks) During an examination of financial statements, an auditor verifies management’s assertions ie.existence, completeness, rights, valuation etc. In doing so, the auditor must choose the quality and quantity of evidence, and the timing of the tests to be performed. Required: (a) Select and justify your choice as to which of the followings are considered higher quality audit evidence: (i) Bank confirmation versus bank statement. (ii) Observation of inventory count on 31 October 2019 versus observation of inventory...
Question 3 – Evidence (20 marks) PART A (a) If you are vouching a sample of items from a general ledger account back to an associated subsidiary ledger, through the associated journal to associated source documents (for the original transaction/event), what assertion would you be primarily testing? (1 mark) (b) If you are tracing a sample of items from a file of source documents through the associated journal to an associated subsidiary ledger and general ledger account, what assertion would...
1.To conclude that a management review control is effective, the auditor is required to identify a selection of instances in which the control operated, evaluate whether management followed the procedures specified by the control, and properly evaluated and resolved exceptions. A) True B) False 2. Which of the following statements about substantive analytical procedures is correct? A) The results of the procedure provide evidence about the existence or absence of misstatement in an account. B) The results of the procedure...