Question

Learning objectives addressed by this exercise: Chapter 3-Learning Objectives 4 1. The following are ten various audit procedures performed to satisfy specific audit objectives related to management assertions. 1. Read the footnote in the most recent interim financial statements for information regarding the monetary losses from resolution of a lawsuit that was still pending at year-end. The footnote in the year-end financials indicates that the likelihood of a loss is remote. 2. Totaling to ensure that the current and long-term liabilities agree with the total liabilities reported on the financials. 3. Compare amounts on receiving reports to vendors’ invoices and entries in the acquisitions journal. 4. Sending a form to a bank to verify the amount of cash held by the client at year-end. 5. Add the sales journal for the month of July and trace amounts to the general ledger. 6. Multiply the average size proportions of inventory by total number of inventory items held by the client and compare them to the total square footage of the client’s warehouses for reasonableness. 7. Examine expense voucher packages and related vendors’ invoices for approval of expense classification. 8. Witness opening of cash receipts to determine that cash receipts are promptly deposited and recorded. 9. Ask the accounts payable clerk about procedures for verifying prices, quantities and extensions on vendors’ invoices. 10. Compare entries in sales journal to sales invoices and related shipping documents. Required: (1) Identify the type of audit procedure (I – XI) described by (1-10); and (2) Identify the related audit objective(s) (A-E) satisfied by each procedure. I. Footing VI. Analytical Procedures II. Inquiry VII. Reperformance III. Vouching VIII. Recalculation IV. Examination/Inspection IX. Observation of Documents X. Tracing V. Confirmations XI. Subsequent Events A. Existence or Occurrence B. Rights and Obligations C. Completeness D. Valuation or Accuracy E. Presentation and Disclosure Example answer for hypothetical audit procedure 11: I, A

Answer 1

	TYPE OF SITUATION	TYPE OF AUDIT PROCEDURE	RELATED AUDIT OBJECTIVES
1	Read the footnote in the most recent interim financial statements for information regarding the monetary losses from resolution of a lawsuit that was still pending at year-end. The footnote in the year-end financials indicates that the likelihood of a loss is remote.	FOOTNOTE	PRESENTATION AND DISCLOSURES
2	otaling to ensure that the current and long-term liabilities agree with the total liabilities reported on the financials.	ANALYTICAL PROCEDURES	PRESENTATION AND DISCLOSURES
3	Compare amounts on receiving reports to vendors’ invoices and entries in the acquisitions journal.	EXAMINATION	EXISTENCE OR OCCURRENCE
4	Sending a form to a bank to verify the amount of cash held by the client at year-end	INQUIRY-2	VALUATION OR ACCURACY
5	Add the sales journal for the month of July and trace amounts to the general ledger.	TRACING	VALUATION OR ACCURACY
6	Multiply the average size proportions of inventory by total number of inventory items held by the client and compare them to the total square footage of the client’s warehouses for reasonableness.	RECALCULATION	VALUATION OR ACCURACY
7	Examine expense voucher packages and related vendors’ invoices for approval of expense classification	EXAMINATION	RIGHTS AND OBLIGATION
8	Witness opening of cash receipts to determine that cash receipts are promptly deposited and recorded	OBSERVATION	COMPLETENESS
9	Ask the accounts payable clerk about procedures for verifying prices, quantities and extensions on vendors’ invoice	INQUIRY-2	RIGHTS AND OBLIGATION
10	Compare entries in sales journal to sales invoices and related shipping documents.	VOCHING	EXISTENCE OR OCCURRENCE