Question

1. For each of the following audit procedures, identify the audit objective, a – e, that the procedure will be most likely to achieve. The audit objective may be used once, more than once, or not at all. While a procedure may meet more than one audit objective, you need only identify one audit objective per procedure.

1. Existence or Occurrence.
2. Rights or Obligation.
3. Valuation.
4. Cutoff
5. Completeness.
6. Presentation.

1. Trace a sample of shipping documents to recorded sales transactions.
2. Send standard bank confirmation forms to financial institutions.
3. Obtain bank cutoff statement.
4. Ascertain the existence of pledged receivables.
5. Evaluate accounting estimates related to revenue recognition.
6. Review significant year-end sales contracts for unusual terms.
7. Determine adequacy of allowance for uncollectible accounts
8. Investigate payments to related parties.

1._________________           5._______________

2._________________           6._______________

3._________________           7._______________

4._________________           8._______________

Answer 1

Existence: This Objective tests whether the assets such as receivables, inventory etc on the books really exists.

Occurrence : It checks with reference to the documents whether the transactions are really occurred.

Rights or Obligation: It determines whether the company really has rights on its assets i.e really it owns or not and obligation on its liabilties

Valuation: it determines whether the assets and liabilties presented in the books are with right values.

Cutoff: It checks whether the transactions are accounted in the current accounting period.

Completeness: It verifies whether the transactions are completely recorded or any of them are left out.

1) Trace a sample of shipping documents to recorded sales transactions - Existence or Occurrence

Here, the shipping Documents are reviewd to determine the actual occurence of sales. So it is related to Existence or occurrence objective.

2) Send standard bank confirmation forms to financial institutions - Rights or Obligation

The bank confirmation forms are send to determine that the loans are actually made by the company that is the obligation of the company to the bank. So this is related to Rights or Obligation Objective.

3) Obtain bank cutoff statement - Existence or Occurrence

Bank cut off statement is obtained to determine the actual bank balance matches with the bank statement that is the actual occurrence of the transaxtions. So this procedure is related to Existence or occurrence objective.

4) Ascertain the existence of pledged receivables - Existence or Occurrence

The pledged receivables are ascertained to know their actual existance and comes under Existence or Occurrence objective.

5) Evaluate accounting estimates related to revenue recognition - Cutoff

Accounting estimates are evaluated to know whether the revenues are recognised in the correct accounting period. So it Comes under Cutoff Objective.

6) Review significant year-end sales contracts for unusual terms - Existence or Occurrence

Year end sales contracts are reviewed for the actual occurrence of sales and comes under Existence and Occurrence Objective

7) Determine adequacy of allowance for uncollectible accounts - Completeness

It is to determine te transaction of allowance for uncollectible accounts is recorded or left out. So it is related to Completeness Objective.

8) Investigate payments to related parties - Rights or Obligation

This is to identify whether the company really has an obligation to its related parties and comes under Rights or Obligation Objective