Question

le plainin evidential matter in support of financial statement assertions, the auditor develops specific audit chiectives in light of those assertions. Audit procedures are then selected to accomplish audit objectives. Required: Your client is Hillmart, a retail department store that does no production. For each specific inventory audit obiective listed below select the most closely related financial statement assertion and the most appropriate audit procedure, FL nancial statement assertions and audit procedures may be selected once, more than once, or not at all. Financial Statement Assertion Audir Procedure Specific Audit Objective 1. The entity has legal title to inventorics. 2. Recorded inventory quantities include all products on hand. 3. Inventories are reduced, when appropriate, to replacement cost or net realizable value. 4. Cost of inventories is properly calculated. 5. The major categories of inventories and their basis of valuation are adequately reported in the financial statements. ACCOMPANYING CHART Financial Statement Assertion A. Completeness B. Existence or Occurrence C. Presentation and Disclosure D. Rights and Obligations E Valuation or Allocation F. G. H. Audit Procedure Examine current vendors' price lists. Review drafts of the financial statements. Select a sample of items during the physical inventory count and de termine that they have been included on count sheets Select a sample of recorded items and examine supporting vendors' invoices, and contracts. Select a sample of recorded items on count sheets during the physical inventory count and determine that items are on hand. Test reasonableness of direct labor rates. K

Answer 1

Solution:

Financial statement Assertions	Specific audit objective	Audit Procedure
D	1	I
A	2	H
E	3	F
E	4	K
C	5	G

Financial statement Assertions:

A)Completeness-It means that there are no omissions and assets liablities taht should be recorded abd disclosed have been.

B)Existence-means that assets really do exists and there is no overstatement.

C)Presentation and disclosure-it means that the description and disclosure of assets and liablities are relevent and easy to understand and as per Generally accepted accounting principles(GAAP).

D)Rights and obligation-it means that the entity has a legal title or controls the right to an asset or has an obligation to repay a liablity.

E)Valuation and allocation-It means that the amount at which  assets and liablities are valued,recorded and disclosed are apprpriate.