Ward Publishing Company — Part III (See Case 18-32 for Parts I and II)(Objectives 19-1, 19...

Ward Publishing Company — Part III (See Case 18-32 for Parts I and II)

(Objectives 19-1, 19-2, 19-5) Examine the tests of controls and substantive tests of transactions results, including the sampling application in Case 18-32 (pp. 623–624), for Ward Publishing Company. Assume that you have already reached several conclusions.

1. Your tests of details of balances for accounts payable are completed, and you found no exceptions.

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2. Acceptable audit risk for property, plant, and equipment and all expenses is high.

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3. Inherent risk for property, plant, and equipment is high because in the current year, the client has acquired a material amount of new and used printing equipment and has traded in older equipment. Some of the new equipment was ineffective and returned; an allowance was received on others. Inherent risk for expense accounts is low.

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4. New computer equipment and some printing equipment are being leased. The client has never leased equipment before.

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5. Analytical procedures for property, plant, and equipment are inconclusive because of the large increases in acquisition and disposal activity.

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6. Analytical procedures show that repairs, maintenance, and small tools expenses have increased materially, both in absolute terms and as a percentage of sales. Two other expenses have also materially increased, and one has materially decreased.

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7. In examining the sample for tests of controls and substantive tests of transactions, you observe that no sample items included any property, plant, and equipment or lease transactions.

a. Explain the relationship between the tests of controls and substantive tests of transactions results in Case 18-32 and the audit of property, plant, and equipment and leases.

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b. How will the tests of controls and substantive tests of transactions results and your conclusions (1 through 7) affect your planned tests of details for property, plant, and equipment and leases? State your conclusions for each balance-related audit objective. Do not write an audit program.

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c. Explain the relationship between the tests of controls and substantive tests of transactions results in Case 18-32 and the audit of expenses.

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d. How will the tests of controls and substantive tests of transactions results and your conclusions (1 through 7) affect your planned tests of details of balances for expenses? Do not write an audit program.

Objective 19-1

Recognize the many accounts in the acquisition and payment cycle.

Objective 19-2

Design and perform audit tests of property, plant, and equipment and related accounts.

Objective 19-5

Design and perform audit tests of income and expense accounts.