Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
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Chapter 10, Problem 10RQ
To determine
Suggest actions by the auditor in the given case.
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The following are examples of audit procedures:
Watch employees count inventory to determine whether company procedures are being followed.
Count a sample of inventory items and record the amount in the audit files.
Calculate the ratio of sales commission expense to sales as a test of sales commissions.
Review the accounts receivable with the credit manager to evaluate their collectability.
Compare a duplicate sales invoice with the sales journal for customer name and amount.
Obtain a written statement from a bank stating that the client has $15,671 on deposit and liabilities of $500,000 on a demand note.
Add the sales journal entries to determine whether they were correctly totaled.
Obtain a letter from the client’s attorney addressed to the CPA firm stating that the attorney is not aware of any existing lawsuits.
Extend the cost of inventory times the quantity on an inventory listing to test whether it is accurate.
Obtain a letter from an…
An IT auditor is conducting data analysis procedures on an employee expense report file and notices several expenses for $24.99 from the same individual. The company’s policy requires that any expenses that are under $25.00 do not require a receipt. The IT auditor should: [SELECT ALL THAT APPLY
a) Maintain professional skepticism and investigate these transactions further
b) Pass on investigating these items further, focusing on higher dollar amounts
c) Evaluate the business process approval controls, and related procedures
d) Discuss fraud awareness and detection programs with management to gain an understanding of management’s commitment to fraud prevention and related entity-level anti-fraud controls.
You've just completed an audit of receivables. What are your impressions of the findings? How important are receivables to the business? Are you familiar with auditing or handling receivables in your personal, commercial, or professional life?
Chapter 10 Solutions
Principles Of Auditing & Other Assurance Services
Ch. 10 - Prob. 1RQCh. 10 - Prob. 2RQCh. 10 - Prob. 3RQCh. 10 - Prob. 4RQCh. 10 - Prob. 5RQCh. 10 - Prob. 6RQCh. 10 - Prob. 7RQCh. 10 - Prob. 8RQCh. 10 - Prob. 9RQCh. 10 - Prob. 10RQ
Ch. 10 - Prepare an example of lapping of cash receipts,...Ch. 10 - Prob. 12RQCh. 10 - Prob. 13RQCh. 10 - Prob. 14RQCh. 10 - Prob. 15RQCh. 10 - Prob. 16RQCh. 10 - Explain two procedures by which auditors may...Ch. 10 - Prob. 18RQCh. 10 - Prob. 19RQCh. 10 - Prob. 20RQCh. 10 - Prob. 21RQCh. 10 - Prob. 22RQCh. 10 - Prob. 23RQCh. 10 - Prob. 24RQCh. 10 - Prob. 25RQCh. 10 - Prob. 26QRACh. 10 - Henry Mills is responsible for preparing checks,...Ch. 10 - During the first few months of the year, John...Ch. 10 - Prob. 29QRACh. 10 - Prob. 30QRACh. 10 - Prob. 31QRACh. 10 - Prob. 32QRACh. 10 - Prob. 33QRACh. 10 - Prob. 34QRACh. 10 - Prob. 35QRACh. 10 - Prob. 36QRACh. 10 - Prob. 37QRACh. 10 - Select the best answer for each of the following...Ch. 10 - Prob. 38BOQCh. 10 - Prob. 38COQCh. 10 - Prob. 38DOQCh. 10 - Prob. 38EOQCh. 10 - Prob. 38FOQCh. 10 - Reconciliation of the bank account should not be...Ch. 10 - The auditors suspect that a clients cashier is...Ch. 10 - Prob. 38IOQCh. 10 - Prob. 38JOQCh. 10 - Prob. 38KOQCh. 10 - Prob. 38LOQCh. 10 - Which of the following represents a correct...Ch. 10 - Which of the following correctly identifies a risk...Ch. 10 - Which of the following correctly identifies a risk...Ch. 10 - Prob. 39DOQCh. 10 - Prob. 39EOQCh. 10 - Prob. 39FOQCh. 10 - Prob. 40OQCh. 10 - Prob. 41OQCh. 10 - Prob. 42OQCh. 10 - Prob. 43OQCh. 10 - Prob. 44OQCh. 10 - Prob. 45OQCh. 10 - Prob. 46PCh. 10 - Prob. 47PCh. 10 - Prob. 48PCh. 10 - Prob. 49PCh. 10 - Prob. 50ITCCh. 10 - Prob. 51ITCCh. 10 - Prob. 52RDCCh. 10 - Prob. 53EC
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- You are auditing Hawthorne Industries. The preliminary risk assessment resulted in a high potential for fraud given the number of offices it has across Canada and the high volume of travel-related expenses, as well as the weak controls around expense management. The travel expense account has been assigned to you for substantive testing and you would like to design an ADA to perform the testing. The data you have available include:• The general ledger• Corporate credit card data (in aggregate, as well as employee daily totals, location of charges, and vendor category, e.g., restaurant, fuel, hotel)• Payroll records that include start/end date, vacation and absenteeism data, and roleWhat are the main assertions related to the travel expense account? (Several choices may be correct.) Completeness Cut-off Classification Accuracy Occurrence Existencearrow_forwardWhich of the following types of documentary evidence should the auditor consider to be the most reliable? Select one: a. A sales invoice issued by the client and supported by a delivery receipt from an outside trucker. b. Confirmation of an account payable balance mailed by and returned directly to the auditor c. An audit schedule prepared by the client’s controller and reviewed by the client’s treasurer. d. A check, issued by the company and bearing the payee’s endorsement, that is included with the bank statements mailed directly to the auditorarrow_forwardDetermine whether each of the following procedures is a test of control or a substantive test. a) The auditor inspects a sample of sales orders to determine if the sales manager has approved the orders. b) The auditor sends a confirmation to the bank to verify the cash balance on hand. c) The auditor attends the inventory count and observes client personnel as they conduct the count. d) The auditor recalculates the amount of interest payable. e) Stand by the payroll time clock to determine whether any employee "punches in" more than one time.arrow_forward
- The following are 11 audit procedures taken from an auditprogram:1. Foot the accounts payable trial balance and compare the total with the general ledger.2. Confirm accounts payable balances directly with vendors.3. Account for a sequence of checks in the cash disbursements journal to determinewhether any have been omitted.4. Examine vendors’ invoices to verify the ending balance in accounts payable.5. Compare the balance in payroll tax expense with previous years. The comparisontakes the increase in payroll tax rates into account.6. Examine the internal auditor’s initials on monthly bank reconciliations as anindication of whether they have been reviewed.7. Examine vendors’ invoices and other documentation in support of recorded transactions in the acquisitions journal.8. Multiply the commission rate by total sales and compare the result with commissionexpense.9. Examine vendors’ invoices and other supporting documents to determine whetherlarge amounts in the repair and maintenance…arrow_forwardWhat are your takeaways from the audit of receivables? How crucial is the role of receivables to the company? Do you have experience in auditing or handing receivables in your respective personal matters, business, or employment?arrow_forwardCourse: Auditing You are the audit partner of ‘Power Auditors’ and you are auditing your client ‘Freefall Incorporated’. After finishing all the tests on the client’s financial information you determine that there is a material misstatement in the accounts receivable account of your client. This misstatementhas also caused the sales revenue account to be materially misstated. You have notified the client about the misstatement but as of reporting date, client has not made any corrections. You also found misstatements in the fixed assets and accounts payable accounts, but they are not material as per your assessment. You found no other misstatements in the otheraccounts. In addition to this, you also notice that the client has a large amount of debt which will be due next year. As the business has suffered a loss this year and does not have enough cash low at the end of the year to pay the debt next year, the client will need to secure some form of refinancing next year. Without this…arrow_forward
- Which of the following would provide an auditor with the most reliable evidence reguarding the existence of accounts receivable? A. A copy of the invoice sent to the customer. B. Acopy of the customer's sales order held by the client. C. An accounts receivable confirmation received by the auditor from the client's customer. D. An aging schedule showing the composition of the year-end-accounts receivable balance.arrow_forwardWhen planning to perform an audit, an accountant must have a clear understanding of audit risk and its components. The existing audit risk components consist of: 1. Control Risk 2. Detection Risk 3. Inherent Risk For each of the following situations, determine the component of audit risk that exists and explain why. 1. The client failed to find fraud committed by his employees as early as possible because the client did not reconcile the bank balance every month. 2. The auditor's confirmation of accounts receivable failed to detect material misstatements in the sales and accounts receivable accounts. 3. Procedure for disbursement of money at the client which is carried out without the approval of the authorized officialarrow_forwardBelow are some audit procedures. Classify each procedure according to the following types of audit evidence: 1) inspection, 2) external confirmation, 3) recalculation, 4) observation, 5) inquiry of the client, 6) reperformance, and 7) analytical procedure. (each procedure can be used more than once or not at all) Audit Procedures Count inventory items and record the amount in the audit working papers. Stand by the payroll time clock to determine whether any employee "punches in" more than one time. Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of gross margin relative to the preceding year. Obtain information about the client's internal controls by asking questions of client personnel. Examine the purchase invoice for a piece of equipment and ensure that the equipment was received and is in operation. The auditor computes the debt covenant based on the financial information to ensure that the client's calculation was performed correctly. Obtain…arrow_forward
- Assume that your audit partner has asked you to design detailed substantive testingprograms for the accounts receivable and sales; inventory; purchases and accountspayable; and payroll systems of Square Pharma. Your partner also asked you toincorporate all or some of the following types of tests: Specific analytical procedures,tests of detail (i.e. direct tests on balances and tests of transactions of a balance).While designing the testing programs, assume that the Tests of Control identifythe weaknesses as described in each of the following situations, but no other. Insummary:(a)Consider the control weaknesses for each subsystem as set out below; (b)Design and develop a substantive audit tests program using information fromlast three year annual reports and explain and justify your audit program in termsof audit objectives (also called 'audit assertions' )Note: The risk situations below are created for purposes of teaching and bear norelationship to events in Briscoe Group Ltd or any…arrow_forwardWhat are your key takeaways from the receivables audit? How critical is receivables to the business? Do you have any experience auditing or managing receivables in your personal life, company, or place of employment?arrow_forwardYou are a trainee in audit firm and you have been assigned to verify the follow balances for IJK Limited; Account receivables Sales Inventories Account payables Vehiclesarrow_forward
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