Question

Classify each of the following according to the type of evidence:

A) Analytical procedures C) Examination of documents E) Observation G) Recalculation H) Reperformance I) Scanning

B) Confirmation D) Inquiry F) Inspection of assets (i.e Physical examination )

Procedures:

1. Review vendor balances (accounts payable subsidiary ledger) looking for balances with debit amounts.

2. Discuss with company personnel how warranty expense was determined.

3. Examine a check from a customer before it is deposited in the company's bank account.

4. An auditor extends (i.e multiplies) inventory quantities by unit prices to check the mathematical accuracy.

5. Trace shipping documents to related sales invoices to determine that sales have been billed.

6. Send letters to the customers asking them how much they owe the company.

7. The auditor performs an internal control procedure (i.e a walkthrough) to gain an understanding of the client's internal control system.

8. Compare company expense numbers with similar data from previous years.

  

Answer 1

First we will know about each evidence breifly :

A) Analytical procedure : Analytical procedure is nothing evaluation of financial information by analysing financial and non financial data of the comapny

B) Confirmation : Confirming of data with possible available external data , For example select a sample of vendors from the approved vendor list and request them to provide a statement of their account balance as of the balance date.

C) Examination of Documents : Checking the balances of general ledger with supportings avalible internally , For selecting a sample of account balances from the accounts payable subsidiary ledger and trace amounts to supporting documentation.

D) Inquiry : Inquiring something with management for evidencing balances , For example discussing with the client the criteria for how an account is classified as an account payable.

E) Observation ; It consists of looking at a process or procedure being performed by others.

F) Inspection of assets : Nothing but physical verification of assets.

G) Recalculation : Recalculating the data provided by client , For example Recalculating accounts payable lschedule agrees with the balance to the accounts payable subsidiary ledger and to the general ledger.

H) Reporformance : Independent execution of procedures or controls that were actually performed as part of the entity's internal control, For example, reperforming the aging of accounts receivable.

I) Scanning : It involves scrutinizing entries in accounting documents to ascertain their authenticity and accuracy.the scanning procedure, the auditor is on the look for unusual items.

Answer :

1. Review vendor balances (accounts payable subsidiary ledger) looking for balances with debit amounts - Scanning

2. Discuss with company personnel how warranty expense was determined - Inquiry

3. Examine a check from a customer before it is deposited in the company's bank account. - Inspection of assets

4. An auditor extends (i.e multiplies) inventory quantities by unit prices to check the mathematical accuracy.- Recalculation

5. Trace shipping documents to related sales invoices to determine that sales have been billed- Examination of documents

6. Send letters to the customers asking them how much they owe the company- Confirmation

7. The auditor performs an internal control procedure (i.e a walkthrough) to gain an understanding of the client's internal control system.- Reperformance

8. Compare company expense numbers with similar data from previous years.- Analytical procedures