Question

Jean Wang is a junior external auditor of China Chance Limited this year. She asked China Chance for their cash and cash equivalents information in DD Bank. The list of the information includes bank balances, loans, guarantees, acceptance bills, and letters of credit, etc. Several days later, Jean received the list of the information made by the staff at China Chance, which was without any chops or management’s signature.

Requirement:

a) Suggest at least two audit tests/procedures to help Jean to get reliable evidence of the list of information.

Question

Except for cash and cash equivalents, Jean also was assigned to identify substantive audit procedures for the“Revenue” and “Electricity” account balances that will provide sufficient appropriate audit evidence regarding the accuracy of these account balances.

Requirement:

b) Design at least one (1) substantive audit procedure for each account (i.e., “Revenue” and “Electricity”). (You may need to consider the characteristics of accounts in your answers.)

Answer 1

a) Suggest at least two audit tests/procedures to help Jean to get reliable evidence of the list of information.

Ans. Two audit tests/procedures to help Jean to get reliable evidence of the list of information for cash and cash equivalents:

1. Obtain balances confirmation certificates from bank regarding closing balances of  bank balances, loans, guarantees, acceptance bills, and letters of credit, etc. from bank to verify the authenticity of list of information.

2. Verify the closing bank balances appearing in books of accounts with balances appearing in pass book and verify the bank reconciliation statement for the difference between books and pass book.

b) Design at least one (1) substantive audit procedure for each account (i.e., “Revenue” and “Electricity”).

Ans. Substantive audit procedure for Revenue : Auditor should obtain negative confirmation requests from debtors to verify there balances and sales on sample basis.

Substantive audit procedure for Electricity : Verify electricity expense entries in books from available bills issued by electricity department and cross check them with bank statement to verify payment of same.