13-22 (OBJECTIVES 13-3, 13-4, 13-5) The following are commonly performed tests of controls and substantive tests...

13-22 (OBJECTIVES 13-3, 13-4, 13-5) The following are commonly performed tests of controls and substantive tests of transactions audit procedures in the sales and collection cycle:

1. Compare the dates of recording sales in the sales journal with the invoices and shipping documents to see if there is any discrepancy.

2. Examine the evidence, such as the accountant’s initials, to ensure that the accounts receivable master file is reconciled to the general ledger.

3. Compute prices and extensions on sales invoices and trace the prices on invoices to the approved price list or the price master file.

4. Find out whether statements detailing outstanding amounts were sent to customers on a monthly basis.

5. Examine sales returns for receiving reports that have been signed by an authorized employee.

6. Obtain a prelisting of cash receipts and trace their amounts to the cash receipts journal, testing for names, amounts, and dates.

7. Trace cash receipts entries recorded in the cash receipts journal to the bank statement for a month.

Required.

a. Identify whether each audit procedure is a test of control or a substantive test of transactions.

b. State which of the seven transaction-related audit objectives each of the audit procedures fulfills.

c. Identify the type of evidence used for each audit procedure, such as inspection and observation.

Expert Solution

	Transactions	Test of control/ Substantive test of transactions	Audit objectives	Evidence used for each audit procedure
1.	Compare the dates of recording sales in the sales journal with the invoices and shipping documents to see if there is any discrepancy.	Test of controls	Timing	Inspection (documentation)
2.	Examine the evidence, such as the accountant’s initials, to ensure that the accounts receivable master file is reconciled to the general ledger.	Test of controls	Accuracy	Posting and Summarization
3.	Compute prices and extensions on sales invoices and trace the prices on invoices to the approved price list or the price master file.	Substantive test of transactions	Accuracy	Recalculation
4.	Find out whether statements detailing outstanding amounts were sent to customers on a monthly basis.	Substantive test of transactions	Accuracy	Confirmation
5.	Examine sales returns for receiving reports that have been signed by an authorized employee.	Test of controls	Occurrence	Inspection (documentation)
6.	Obtain a prelisting of cash receipts and trace their amounts to the cash receipts journal, testing for names, amounts, and dates.	Substantive test of transactions	Completeness	Re-performance
7.	Trace cash receipts entries recorded in the cash receipts journal to the bank statement for a month.	Test of controls	Occurrence	Re-performance

ekkarill92 answered 2 years ago

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