Question

In: Accounting

PART III. (20 percent) – The following audit procedures are taken from an audit program. Example:...

PART III. (20 percent) – The following audit procedures are taken from an audit program.

Example: Compare dates of receiving reports and vendors’ invoices with dates in the acquisitions journal.

1. Foot the outstanding checklist and deposits in transit.

2. Examine printouts of transactions rejected by the computer as having non-existent employee numbers.

3. Inquire about consignment or customer inventory included on client’s premises.

4. Compare pay rates with union contract, approval by board of directors, or other sources.

5. Trace deposits in transit to subsequent period bank statement.

6. Recompute the clerical accuracy on the vendor’s invoices, including discounts and freight.

7. Observe whether the movement of inventory takes place during the count.

8. Review time card for employee department and job ticket for job assignment and trace through to labor distribution.

9. Examine procedures manual and observe whether unrecorded vendors invoices exist.

10. Observe whether accountant reconciles bank account.

Requirements: a. For each procedure, identify the applicable audit cycle (i.e. Sales and Collection; Acquisitions, Inventory, and Payroll);

b. For each procedure, identify the type of objective; and

c. For each procedure, identify which of the following is it:

(1) Test of control (2) Substantive test of transactions.

(3) Analytical procedure, or

(4) Test of details of balances Procedure Account Audit Objective Type of Test Example: Compare dates of receiving reports and vendors’ invoices with dates in the acquisitions journal. Acquisitions Timing Substantive Test of Transaction

Solutions

Expert Solution

Q1. Foot the outstanding checklist and deposits in transit.

a. Audit Cycle – Sales and Collection

b. Objective – To confirm that checks received from clients are deposited in the bank

    on same date or maximum the next day.

c. Test of control

Q2. Examine printouts of transactions rejected by the computer as having non- existent employee numbers.

a. Audit Cycle – Payroll systems

b. Objective – To confirm that fictitious employees are not existing in the payroll

     system.

c. Test of control

Q3. Inquire about consignment or customer inventory included on client’s premises.

a. Audit Cycle – Inventory control

b. Objective – To confirm that inventory in premises does not include sold inventory of their client that has not been delivered.

c. Test of control

4. Compare pay rates with union contract, approval by board of directors, or other sources.

a. Audit Cycle – Payroll

b. Objective – To confirm pay rates paid to employees are duly approved by appropriate authorities

c. Substantive test of transactions

5. Trace deposits in transit to subsequent period bank statement.

a. Audit Cycle – Sales and collection

b. Objective – To check deposit slips and ensure checks are duly deposited and subsequently confirm their clearance in the bank statement.

c. Substantive test of transactions

6. Recompute the clerical accuracy on the vendor’s invoices, including discounts and freight.

a. Audit Cycle – Acquisitions

b. Objective – To check arithmetical accuracy of vendor invoices and correct application of discounts and freight.

c. Substantive test of transactions

7. Observe whether the movement of inventory takes place during the count.

a. Audit Cycle – Inventory

b. Objective – To check same inventory is not double counted at different places through its movement during physical inventory count.

c. Test of control

8. Review time card for employee department and job ticket for job assignment and trace through to labor distribution.

a. Audit Cycle – Payroll

b. Objective – To check employee time card and ensure it is correctly recorded to job assignment and labor distribution of workload.

c. Test of control

9. Examine procedures manual and observe whether unrecorded vendors invoices exist.

a. Audit Cycle – Acquisitions

b. Objective – To check rules and manuals of purchasing policy and acquisitions and understand if there is weakness in the system wherein vendor invoices remain unrecorded after their goods/ services are received from the vendor.

c. Test of control

10. Observe whether accountant reconciles bank account.

a. Audit Cycle – Bank reconciliation

b. Objective – To check if proper bank reconciliation procedure is followed by the accountant and ensure all transactions of the bank are duly reconciled with the books of accounts.

c. Test of details of balances Procedure Account


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