Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 21, Problem 19DQP
a.
To determine
Identify whether the given procedures are primarily a test of control or a substantive test.
b.
To determine
Indicate the purpose of each of the procedures.
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3)
Which of the following audit procedures is a test of control?
a.
Management providing written instruction to all employees and supervising the monthly inventory stocktake.
b.
Observing employee compliance with stocktake procedures.
c.
Picking a sample of goods received notes and ensuring the correct date is recorded in the purchase’s ledger.
d.
Estimating total sales for a specific product line for the year and comparing actual sales.
The auditor generally decides whether the inventory count can be taken before year-end primarily on the basis of:
audit efficiency.
accuracy of the perpetual inventory master files.
client convenience.
audit staff availability.
Following are audit procedures commonlyperformed in the inventory and warehousing cycle for a manufacturing company:1. Read the client’s physical inventory instructions and observe whether they are beingfollowed by those responsible for counting the inventory.2. Account for a sequence of inventory tags and trace each tag to the physical inventoryto make sure it actually exists.3. Compare the client’s count of physical inventory at an interim date with the perpetualinventory master file.4. Trace the auditor’s test counts recorded in the audit files to the final inventorycompilation and compare the tag number, description, and quantity.5. Compare the unit price on the final inventory summary with vendors’ invoices.6. Account for a sequence of raw material requisitions and examine each requisitionfor an authorized approval.7. Trace the recorded additions on the finished goods perpetual inventory master fileto the records for completed production.a. Identify whether each of the procedures…
Chapter 21 Solutions
Auditing And Assurance Services
Ch. 21 - Prob. 1RQCh. 21 - Prob. 2RQCh. 21 - Prob. 3RQCh. 21 - Prob. 4RQCh. 21 - Prob. 5RQCh. 21 - Prob. 6RQCh. 21 - Prob. 7RQCh. 21 - Prob. 8RQCh. 21 - Prob. 9RQCh. 21 - Prob. 10RQ
Ch. 21 - Prob. 11RQCh. 21 - Each employee of the Gedding Manufacturing Co., a...Ch. 21 - Prob. 13.1MCQCh. 21 - Prob. 13.2MCQCh. 21 - Prob. 13.3MCQCh. 21 - Prob. 14.1MCQCh. 21 - Prob. 14.2MCQCh. 21 - Prob. 14.3MCQCh. 21 - Prob. 15.1MCQCh. 21 - Prob. 15.2MCQCh. 21 - Prob. 15.3MCQCh. 21 - Prob. 16DQPCh. 21 - Prob. 17DQPCh. 21 - Prob. 18DQPCh. 21 - Prob. 19DQPCh. 21 - Prob. 20DQPCh. 21 - Prob. 21DQPCh. 21 - Prob. 22DQPCh. 21 - Prob. 23DQPCh. 21 - Prob. 24DQPCh. 21 - Prob. 25DQPCh. 21 - Prob. 26DQPCh. 21 - Prob. 27DQPCh. 21 - Prob. 28DQPCh. 21 - Prob. 29DQPCh. 21 - Prob. 30C
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- For each of the accounts balances and associated assertions below, select the audit procedure from the list provided that gives the most appropriate audit evidence for the account assertion. Accounts Balance Assertion Procedure Inventory Completeness a. Examine invoices from suppliers. b. Examine invoices paid after year-end and trace to subsidiary ledger. c. Select items located in the inventory warehouse and trace to the inventory listing. d. Trace sales invoices and shipping documents just after year-end to customer accounts. Cash Rights and obligations a. Agree bank statement to the subsidiary ledger. b. Agree the cash balance per the bank reconciliation to the year-end bank statement. c. Review the bank confirmation for information on compensating balances. d. Trace deposits per the bank statement to the cash subsidiary ledger. Accounts Receivable Existence a. Review confirmation of accounts receivable…arrow_forward1. When auditing a manufacturing concern, what major inquiries might be made by the auditor about the cost accounting system? 2. In the audit of inventory the auditor must perform important procedures prior to the actual observation. Identify the steps the auditor must take prior to the day the inventory is actually counted.arrow_forwardWhen verifying debits to the perpetual inventory records of a nonmanufacturing company, auditors would be most interested in examining a sample of purchasea. Approvals.b. Requisitions.c. Invoices.d. Orders.arrow_forward
- The primary reason why auditors observe client's physical inventory is to make sure the amount of inventory reported in the Statement of Financial Position actually exists and fully owned by the company.a. Explain various audit procedures that should be performed by auditor to determine the slow-moving or obsolete items included in the inventory count. What is the important of attendance of the auditors during the physical inventory count?arrow_forwardAssuming that the auditor properly documents receiving reportnumbers as a part of the physical inventory observation procedures, explain how theproper cutoff of purchases, including tests for the possibility of raw materials in transit,should be verified later in the auditarrow_forwardThe purchasing agent receives an inventory status report on his computer terminal from the inventory control application, which identifies the items that need to be reordered. The agent selects the suppliers and enters this information into the computer terminal to create a digital purchase order. He then prints and sends a copy of the PO to the supplier. When the goods are received directly into the warehouse, the warehouse manager counts and inspects them. The manager then creates a digital receiving report and updates the inventory subsidiary ledger from the warehouse terminal. A few days later, the supplier sends an invoice to the AP clerk who reconciles it with the digital copy of the receiving report. From her computer terminal, the clerk records the purchase in the purchases journal and records the liability by adding a record to the AP subsidiary ledger and assigning a due date. Each day, the cash disbursement clerk visually searches the AP subsidiary ledger from her terminal…arrow_forward
- The purpose of an audit trail is to be able to trace a transaction from its original through source documents to the final output or backwards from the final output to the original source documents to prove the accuracy and validity of Ledger postings. Describe in detail the audit trail for the following manufacturing business: b) Customer returns defective goodsarrow_forwardThe purpose of an audit trail is to be able to trace a transaction through source documents to the final output or backwards from the final output to the original source documents to prove the accuracy and validity of ledger postings. Describe in detail the audit trail for the following in a manufacturing business: a. Shipping an order to a customer b. Customer returns defective goods c. Employee payroll for employee wages (using cards or time sheetsarrow_forwardThe purchasing agent receives an inventory status report on his computer terminal from the inventory control application, which identifies the items that need to be reordered. The agent selects the suppliers and enters this information into the computer terminal to create a digital purchase order. He then prints and sends a copy of the PO to the supplier.When the goods are received directly into the warehouse, the warehouse manager counts and inspects them. The manager then creates a digital receiving report and updates the inventory subsidiary ledger from the warehouse terminal.A few days later, the supplier sends an invoice to the AP clerk who reconciles it with the digital copy of the receiving report. From her computer terminal, the clerk records the purchase in the purchases journal and records the liability by adding a record to the AP subsidiary ledger and assigning a due date.Each day, the cash disbursement clerk visually searches the AP subsidiary ledger from her terminal for…arrow_forward
- An auditor usually traces the details of the test counts made during the observation of physical inventory counts to a final inventory compilation. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditor at the time of thephysical inventory count area. Owned by the client.b. Not obsolete.c. Physically present at the time of the preparation of the final inventory schedule.d. Included in the final inventory schedule.arrow_forwardThe auditor is verifying whether all goods received by the company have been recorded appropriately. The source document that the auditor would test would most likely be the Supplier invoices Purchase orders Receiving reports Check vouchersarrow_forwardAn auditor selected items for test counts from the client’s warehouse during the physical inventory observation. The auditor then traced these test counts into the detailed inventory listing that agreed to the financial statements. This procedure most likely provided evidence concerning management’s assertion ofa. Rights and obligations.b. Completeness.c. Existence.d. Valuation.arrow_forward
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