(Objectives 13-4, 13-5) Following are several decisions that the auditor must make in an audit of a nonpublic company. Letters indicate alternative conclusions that could be made.
Decisions | Alternative Conclusions |
1. Determine whether it is cost effective to perform tests of controls. | A. It is cost effective |
| B. It is not cost effective |
2. Perform substantive tests of details of balances. | C. Perform reduced tests |
| D. Perform expanded tests |
3. Complete initial assessment of control risk. | E. Controls are effective |
| F. Controls are ineffective |
4. Perform tests of controls. | G. Controls are effective |
| H. Controls are ineffective |
a. Identify the sequence in which the auditor should make decisions 1 to 4.
b. For the audit of the sales and collection cycle and accounts receivable, an auditor reached the following conclusions: A, D, E, H. Put the letters in the appropriate sequence and evaluate whether the auditor’s logic was reasonable. Explain your answer.
c. For the audit of inventory and related inventory cost records, an auditor reached the following conclusions: B, C, E, G. Put the letters in the appropriate sequence and evaluate whether the auditor used good professional judgment. Explain your answer.
d. For the audit of property, plant, and equipment and related acquisition records, an auditor reached the following conclusions: A, C, F, G. Put the letters in the appropriate sequence and evaluate whether the auditor used good professional judgment. Explain your answer.
e. For the audit of payroll expenses and related liabilities, an auditor recorded the following conclusions: D, F. Put the letters in the appropriate sequence and evaluate whether the auditor used good professional judgment. Explain your answer.
Objective 13-4
Understand the concept of evidence mix and how it should be varied in different circumstances.
Objective 13-5
Design an audit program.
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