Question

4. Explain how each of the following procedures could be used in the audit of fixed assets, e.g., various types of equipment used in the business. Organize your answer as follows:

Procedure    Audit Test performed      Assertion(s) tested

Observation

Physical examination Inquiry

Confirmation

Examination of documents

Recomputation

Vouching

Analytical procedures

5. Businesses often have litigation against them that the auditor has to identify and adequately disclose. List the financial assertions that apply to Contingencies. For each assertion indicate two or three audit procedures that would address that assertion.

Organize you answer as follows:

Financial Statement assertion      Audit procedure(s)

Answer 1

4.

Procedure	Audit test performed	Assertion(s) tested
Ovservation	Observe taking of inventory of assets	Existence
Physical Examination	Inspect existence and condition of assets.	Existence, Valuation
Inquiry	Inquire of management of assets not recorded or that have been sold or discarded.	Existence, Completeness
Confirmation	Confirm details of purchase with seller of asset.	Existence, Valuation, Presentation and Disclosure, Rights
Examination of documents	Examine supporting documentation	Existence, Valuation, Rights
Recomputation	Recompute depreciation	Valuation
Vouching	Vouching a sample of recorded assets.	Existence, Valuation, Rights
Analytical Procedures	Analysis depreciation expense	Valuation, Completeness

5.

Financial statement assertion	Audit procedure(s)
Existence	Inquiry of management
	Send confirmation request to legal counsel
Completeness	Inquiry of management
	Vouch legal expenses
	Review nature of legal services to determine if a liability might exist
Rights and Obligations	Inquiry of management
	Confirmation from legal counsel
	Examine payments related to in-progress litigation
Valuation and Allocation	Inquiry of management
	Confirmation of legal counsel
	Review court rulings
Presentation and Disclosure	Inquiry of management
	Confirmation of legal counsel