Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN: 9781305080577
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: South-Western College Pub
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Question
Chapter 6, Problem 53RSCQ
To determine
Introduction : The objective of this study is to analyze the most effective methods in testing the sales account balance that need to be followed by an auditor.
Relevant measures that need to be takenappropriately for an auditor to effectively test the sales account balance.
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You have performed preliminary analytical procedures on one of your audit engagements and observed the following independent situations:
The allowance for obsolete inventory increased from the prior year, but the allowance as a percentage of inventory decreased from the prior year.
Long-term debt increased from the prior year, but total interest expense decreased as a percentage of long-term debt.
The dollar amount of operating income is consistent with the prior year although the entity was more profitable on a net income basis.
The quick ratio decreased from the prior year, although the amount of cash and net accounts receivable is almost the same as the prior year.
Required:
Below are possible explanations for each of the observed changes in the financial statement amounts and ratios. For each observed change, select the most likely explanation(s) from the list below. Note: There may be more than one explanation for a given observed change, and an explanation…
he auditor of Kent Ltd selects a sample from the file of shipping documents in order to confirm that all sales shipped are invoiced and recorded in accounting records. This test will confirm:Select one:a. Valuation and allocation assertion for sales.b. Cut-off assertion for sales.c. Occurrence assertion for sales.d. Completeness assertion for sales.
The following Specific Balance Related Audit Objective-Sales Cutoff at year-end is proper- isrelated to which of the following Manangement Assertions
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Accuracy valuation and allocation
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Completeness
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Chapter 6 Solutions
Auditing: A Risk Based-Approach to Conducting a Quality Audit
Ch. 6 - Prob. 1TFQCh. 6 - Prob. 2TFQCh. 6 - Prob. 3TFQCh. 6 - Prob. 4TFQCh. 6 - Prob. 5TFQCh. 6 - Prob. 6TFQCh. 6 - Prob. 7TFQCh. 6 - Prob. 8TFQCh. 6 - Prob. 9TFQCh. 6 - Prob. 10TFQ
Ch. 6 - Prob. 11TFQCh. 6 - Prob. 12TFQCh. 6 - Prob. 13TFQCh. 6 - Prob. 14TFQCh. 6 - Prob. 15TFQCh. 6 - Prob. 16TFQCh. 6 - Prob. 17TFQCh. 6 - Prob. 18TFQCh. 6 - Prob. 19TFQCh. 6 - Prob. 20TFQCh. 6 - Prob. 21MCQCh. 6 - Prob. 22MCQCh. 6 - Prob. 23MCQCh. 6 - Prob. 24MCQCh. 6 - Prob. 25MCQCh. 6 - Prob. 26MCQCh. 6 - Prob. 27MCQCh. 6 - Prob. 28MCQCh. 6 - Prob. 29MCQCh. 6 - Prob. 30MCQCh. 6 - Prob. 31MCQCh. 6 - Prob. 32MCQCh. 6 - Prob. 33MCQCh. 6 - Prob. 34MCQCh. 6 - Prob. 35MCQCh. 6 - Prob. 36MCQCh. 6 - Prob. 37MCQCh. 6 - Prob. 38MCQCh. 6 - Prob. 39MCQCh. 6 - Prob. 40MCQCh. 6 - Prob. 41RSCQCh. 6 - Prob. 42RSCQCh. 6 - Prob. 43RSCQCh. 6 - Prob. 44RSCQCh. 6 - Refer to Exhibit 6.2 and describe the differences...Ch. 6 - Prob. 46RSCQCh. 6 - Prob. 48RSCQCh. 6 - Prob. 49RSCQCh. 6 - Prob. 50RSCQCh. 6 - Prob. 51RSCQCh. 6 - Prob. 52RSCQCh. 6 - Prob. 53RSCQCh. 6 - Indicate how the auditor could use substantive...Ch. 6 - Prob. 55RSCQCh. 6 - Prob. 56RSCQCh. 6 - Prob. 57RSCQCh. 6 - Prob. 58RSCQCh. 6 - Prob. 59RSCQCh. 6 - Prob. 60RSCQCh. 6 - Prob. 61RSCQCh. 6 - Prob. 62RSCQCh. 6 - Prob. 63RSCQCh. 6 - Prob. 64RSCQCh. 6 - Prob. 65RSCQCh. 6 - Prob. 66RSCQCh. 6 - Prob. 67RSCQCh. 6 - Prob. 68RSCQCh. 6 - Prob. 69FFCh. 6 - Prob. 70FFCh. 6 - Prob. 71FFCh. 6 - Prob. 72FFCh. 6 - MINISCRIBE (LO 1, 2) As reported in the Wall...
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Similar questions
- Which of the following audit procedures would an auditor most likely perform to test controls relating to management'ss assertion concerning the completeness of sales transactions? A. Verify the extensions and footings on the entity's sales invoice and monthly customer statements have been recomputed. B. Inspect the entity's reports of prenumbered shipping documents that have not been recorded in the sales journal. C. Compare the invoiced prices on the prenumbered sales invoices to the entity's authorized price list. D. inquire about the entity's credit granting policies and the consistent application of credit checks.arrow_forwardWhich of the following audit procedures is the best test of the accuracy, valuation and allocation assertion for inventory? Select one: a. Obtaining the last receiving record numbers for the period and checking that they were taken up correctly b. Confirming stock held on consignment c. Comparing standard costs to actual sales prices. d. Attending the annual stocktakearrow_forwardPlease 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 _____________________arrow_forward
- A client maintains perpetual inventory records in quantities and in dollars. If the assessed control risk is high, an auditor would probablya. Apply gross profit tests to ascertain the reasonableness of the physical counts.b. Increase the extent of tests of controls relevant to the inventory cycle.c. Request the client to schedule the physical inventory count at the end of the year.d. Insist that the client perform physical counts of inventory items several times during the year.arrow_forwardDuring the audit of MJ Precious Metals Inc, the auditor observes the physical count at year-end and recalculates the mathematical accuracy of a sample of inventory on hand. Which of the two test of details results in existence assertion? Both test of details results in existence assertion.Recalculating the mathematical accuracy of a sample of inventory on hand.No test shows the detail results in existence assertion.Observing the physical count at year-end.arrow_forwardWhich of the following audit findings would be considered a deficiency in internal controls in the revenue cycle? A. No evidence that price and quantity on an invoice was compared with supporting documentation. B. Quantity shipped differed from quantity billed. C. Recording sales several days before the shipment date. D. All of the above. E. None of the above.arrow_forward
- 11) To obtain evidence on the completeness assertion for revenue, the auditor would select a sample of shipping documents and trace them to the sales journal True Falsearrow_forward3) 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.arrow_forwardAs a result of analytical procedures an auditor determines that gross profit has declined from 30% to 15% in the current year. The auditor should.. A. Document manamgent intentions with respect to reversing the trend. B. Evaluate managment's performance in causing the deline C. Require a footnote disclosure D. Consider the possibility of an error in the financial statements.arrow_forward
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