Question

(subject name: auditing in accounting)

.

.

.

Question :

As a senior auditor on the E&U accounting firm you are assigned the following tasks:

1) Auditing sales and accounts receivable cycle accounts

2) Auditing expenditures & accounts payable cycle accounts

3) Auditing payroll cycle accounts

for each of audited cycle mentioned above, prepare a plan that describe the following:

A) audit objectives/management assertions to be investigated.

note: as you answer give example

Answer 1

Accounting cycles	Audit objective	Management Assertion to be investigated	Relevant Examples
Auditing sales and accounts receivable cycle accounts	The following audit objectives pertains to this accounting cycle-: (i) to ascertain whether all sales are genuine and no fictitious. (ii) To see whether revenue has been recognized in accordance with Company's accounting policies (iii) Whether all the receivables are realizable in full or not.	(i) Existence (For sale invoices) (ii) Valuation net (for accounts receivable)	During the time of audit, engagement checks whether all the FOB destination has been correctly booked as goods in transit or not rather than sales. Independent confirmation to debtors are rolled out to confirm whether amounts are realizable in full or not.
Auditing expenditures & accounts payable cycle accounts	Audit Objectives-: (i) to see whether expenditure are genuine or not (ii) to confirm whether all the expenditures pertaining to current financial year has been accounted (iii) Proper authorisation as per the internal control of the company	(i) Completeness (for inventory purchase) (ii) Existence (for vendors existence and their invoices)	Engagement obtains completes list of inventory on balance sheet date and checks its completeness. KYC records of vendors are checked to ensure vendors exists.
Auditing payroll cycle accounts	Audit Objectives-: (i) to see whether employees really exist and there are not any ghost employees. (ii) Payroll has been correctly processed by the company. (iii) Payroll records matches with the accounting records.	(i) Existence (employees exist)	Engagement tests employees files to check the possibility of ghost employees. Reconciliation is prepared between payroll and employee cost booked in trial balance.