Question

For each of the following specific audit procedures, indicate the type of audit evidence it is gathering: (1) Inspection of records or documents, (2) inspection of tangible assets (3) observation, (4) inquiry, (5) confirmation, (6) recalculationreperformance (8) analytical procedures, and (9) scanning. The audit evidences can be used more than once a Discussing the recording of sales discounts in the fourth quarter with the accounts receivable manager b Examining sales invoices for supporting customer order and shipping documents c Reviewing the accounts payable subsidiary ledger for debit balances interest bearing payables d Sending a written request to the entity's bank requesting the cash balances in the entity's accounts and any other liability balances that the entity the bank e Comparing the current.year accounts receivable turnover with the accounts receivable turnover for the industry f. Examining a new plece of equipment to ensure that a major acquisition was received and is operational gWatching the entity's accounting personnel while they prelist cash receipts. . Footing the entity's bank reconciliation and tracing the balance per the books to the general ledger Recomputing sales price and extensions on sales invoices For a sample of sales transactions recorded in the sales journal , tracing the sales invoices back to customer orders and shipping documents .

Answer 1

While doing Audit - Books of Accounts, multiple level of Transaction – need to do complete, documentation flow, record analysis , verify correctness of all document and cross verify number with General ledger balance . Audit need to ensure about completeness , accuracy, correctness of data , information . they need to collect , documented all relevant information before reaching any true and fair view conclusion .

In general , we noticed that last Quarter of Year end ( Q4) , sales value increased and subsequently pass credit note to reversal of sales . Sometime Company accouted major Sales discount at 4^th Quarter and adjusted with Account receivable – in this Scenario Auditor must review following information to establish that Sales discount adjustment is correctly accounted abd disclose in the Financial –

Most important to ensure by Auditor that company is not doing any wrong in relates to generation of Invoice , accounting of receivable , collection of money etc They need to ensure that company is not materially misstated its revenue and account receivable .

In case of sales discount adjustment , auditor needs to o trend analysis and find out nature of the transaction , volume of transaction . they need to ensure whether any abnormal adjustment through Sales discount . if any abnormal amount , they will get clarification from Management in this matter and documented complete process . In each stage they need to ensure accuracy and completeness of process .

In case of sales , Invoice cycle / process , company must follow some control system .Auditor needs to review established control and ensure correctness of control mechanism

The auditor randomly selected data ( form huge volume of data ) , or they must have determined audit materiality limit ( depends on volume of transaction and six=ze of business) and do complete checking like Purchase Order , invoice generation , customer statement ,

Auditor needs to review Debtors OUTSTANDING Age wise report and revire collection position . they need to find out DSO days in case of Debtor ( collection days ) . Simultaneously , they need to determined Inventory turnover days and creditors turnover days and determined ash conversion cycle in days terms and compare the same with PEER company .

In case of receivable Balance , collection , credited in bank Statement – complete process flow they need to review . they need to do trend analysis of collection and any challenge for OLD outstanding amount . Auditor needs to ensure that company must made adequate provision in case of any challenge in collection , As per latest IFRS9 – Auditor has to do ECL ( Expected credit loss() method analysis on the basis of debtors OS report and find out tentative Provision amount and ensure that company must maintain the same .

In case of Inventory Audit , one of the important factor .area to Audit in relates to Manufacturing company , Auditor needs to review Inventory Ageing report and ensure correct provision in case of very OLD aged Inventory and ensure companies internal control and provision policy in this matter .