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The following are five situations, each containing two means of accumulating evidence: 1. Confirm receivables with consumers versus confirming
2. Examine duplicate sales invoices when several competent people are checking each other’s work versus examining documents prepared by a competent person on a one-person staff.
3. Physically examine inventory of parts for the number of units on hand versus examining them for the likelihood of inventory being obsolete.
4. Confirm a bank balance versus examining the client’s bank statements. 5. Obtain a physical inventory count from the company president versus physically counting the client’s inventory.
Required:
a. Identify the factors (at least 5 factors) that determine the reliability of evidence. For each factor, give one example of evidence that is likely to be reliable.
b. For each of the five situations, state whether the first or second type of evidence is more reliable.
c. For each situation, state which of the factors in (a) affected the reliability of the evidence.
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- The following are nine situations, each containing two meansof accumulating evidence:1. Confirm receivables with consumers versus confirming accounts receivable withbusiness organizations.2. Physically examine 3-inch steel plates versus examining electronic parts.3. Examine duplicate sales invoices when several competent people are checking eachother’s work versus examining documents prepared by a competent person on aone-person staff.4. Physically examine inventory of parts for the number of units on hand versusexamining them for the likelihood of inventory being obsolete.5. Discuss the likelihood and amount of loss in a lawsuit against the client with client’sin-house legal counsel versus discussion with the CPA firm’s own legal counsel.6. Confirm the oil and gas reserves with a geologist specializing in oil and gas versusconfirming a bank balance.7. Confirm a bank balance versus examining the client’s bank statements.8. Physically count the client’s inventory held by an independent…For each of the following audit procedures, state which type of evidence-gathering technique is being used: (1) inspection or (2) computation or (3) confirmation or (4) analytical procedures or (5) enquiries or (6) observation. i. Performing test counts of the warehouse personnel’s count of the raw material. ii. Obtaining a letter from the client’s solicitor indicating that there were no lawsuits in progress against the client. iii. Tracing the prices used by the client’s billing program for pricing sales invoices to the client’s approved price list. iv. Sending a written request to the client’s customers requesting that they report to the auditor the amount owed to the client. v. Examining large sales invoices for a period of two days before and after year-end to determine if sales are recorded in the proper accounting period.Precision Industries, Inc., is a manufacturer of electronic components. When a purchase order is received from a customer, a sales clerk prepares a serially numbered sales order and sends copies to the shipping and accounting departments. When the merchandise is shipped to the customer, the shipping department prepares a serially numbered shipping advice and sends a copy to the accounting department. Upon receipt of the appropriate documents, the accounting department records the sale in the accounting records. All shipments are FOB shipping point. How can the auditors determine whether Precision Industries, Inc., has made a proper year-end cutoff of sales transactions?
- The following are audit procedures from different transaction cycles:1. Examine duplicate copy of shipping documents for evidence that quantities wereverified before shipment.2. Select a sample of payroll checks and agree hours to employee time records.3. Use audit software to foot and cross-foot the sales journal and trace the balance tothe general ledger.4. Examine voucher packages and related vendor invoices for evidence of approval ofaccount classification.5. Trace a sample of shipping documents to entry in the sales journal.6. Examine a sample of warehouse removal slips for signature of authorized official.7. Select a sample of entries in the cash receipts journal and trace to posting in individualcustomer accounts receivable records.8. Select a sample of sales invoices and agree prices to the approved price list.a. For each audit procedure, identify whether it is a test of control or a substantive testof transactions.b. For each audit procedure, identify the transaction-related…Following are 10 audit procedures with words missing and a list ofseveral terms commonly used in audit procedures.Audit Procedures1. the unit selling price times quantity on the duplicate sales invoice andcompare the total to the amount on the duplicate sales invoice.2. whether the accounts receivable bookkeeper is prohibited from handlingcash.3. the ratio of cost of goods sold to sales and compare the ratio to previousyears.4. the sales journal and the total to the general ledger.5. the sales journal, looking for large and unusual transactions requiringinvestigation.6. of management whether all accounting employees are required to takeannual vacations.7. all marketable securities as of the balance sheet date to determine whetherthey equal the total on the client’s list.8. the balance in the bank account directly with the East State Bank.9. a sample of duplicate sales invoices to determine if the controller’s approval isincluded and each duplicate sales invoice to the sales journal for…Listed in the table below are some common audit procedures. For each procedure below: Identify whether it is a test of control (TOC), substantive test of transaction (STOT), analytical procedure (AP) or a test of details of balances (TODOB). Write your answer in the 2nd column of the table below. State one audit objective that is being satisfied. Write your answer in the 3rd column of the table below. Procedure (a) Type of Test (b) Audit Objective Example: Compare the quantity and description of items on duplicate sales invoices with related shipping documents. STOT Accuracy 1.Foot the list of accounts payable and trace the balance to the general ledger. 2. Account for the sequence of purchase orders 3. Select a sample of purchase transactions from purchase journal and trace them to vendors’ invoices and statements 4. Exam cash payments subsequent to the balance date to see if they are related to unrecorded…
- 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…Which of the following test controls most likely would help assure an auditor that goods shipped are properly billed? A. Scan the sales journal for sequential and unusual entries. B. Examine shipping documents for matching sales invoice. C. Compare the accounts receivalbe ledger to daily sales summaries. D. inspect unused sales invoices for consecutive prenumbering.1. Please provide the type of audit procedures that was performed in the following actions or procedures: Inquire of management whether they have properly identified obsolete inventory as at the balance sheet date ___________ Re-compute the unit sales price multiplied by the number of units for a sample of duplicate sales invoices, and compare the totals to the client’s calculations _____________________
- The following are audit procedures in the sales and collectioncycle:1. Add the columns on the aged trial balance and compare the total with the generalledger.2. Examine a sample of shipping documents to determine whether each has a salesinvoice number included on it.3. Examine a sample of customer orders and see if each has a credit authorization.4. Compare the date on a sample of shipping documents a few days before and afterthe balance sheet date with related sales journal transactions.5. Discuss with the sales manager whether any sales allowances have been grantedafter the balance sheet date that may apply to the current period.6. Observe whether the controller makes an independent comparison of the total inthe general ledger with the trial balance of accounts receivable.7. Compare the date on a sample of shipping documents throughout the year withrelated duplicate sales invoices and the accounts receivable master file.8. Compute the ratio of allowance for uncollectible accounts…Which, if any, of the following situations represent improper segregation of functions?a. The billing department prepares the customers’ invoices, and the accounts receivable department posts to the customers’ accounts.b. The sales department approves sales credit memos as the result of product returns, and subsequent adjustments to the customer accounts are performed by the accounts receivable department.c. The shipping department ships goods that have been retrieved from stock by warehouse personnel.d. The general accounting department posts to the general ledger accounts after receiving journal vouchers that are prepared by the billing department.Which of the following statements is correct? Select one: a. Account receivable turnover is equal to net credit sales divided by average net accounts receivable. b. Buying aged receivables from businesses and then collects the payments directly from the customers is called Allowance for uncollectible accounts. c. Auto generated document numbers is a fraud preventive method which is more efficient than physical controls. d. If the same people are responsible for a series of related accounting activities is called Segregation of Duties.