Question

Management Assertions and Audit Evidence Assignment

7-26 - Classify each of the following audit procedures according to the:

1. accounting/audit cycle (e.g., sales and collection);
2. audit evidence: (1) physical examination (inspection of tangible assets), (2) confirmation, (3) inspection (examination) of records/documents (tracing or vouching), (4) analytical procedures, (5) inquiries ofthe client, (6) recalculation(of calculations), (7) reperformance(of a procedures), and (8) observation.
3. Type of audit test (e.g., test of control, substantive test of transaction, substantive test of details of balance or analytical procedures)

Audit Procedure	Cycle	Type of Audit Evidence	Type of Test
Calculate the ratio of sales commission expense to sales as a test of sales commissions.
Review the accounts receivable with the credit manager to evaluate their collectibility.
Compare a duplicate sales invoice with the sales journal for customer name and amount.
Obtain a written statement from a bank stating that the client has $15,671 on deposit and liabilities of $500,000 on a demand note.
Add the sales journal entries to determine whether they were correctly totaled.
Count a sample of inventory items and record the amount in the audit files.
Obtain a letter from the client’s attorney addressed to the CPA firm stating that the attorney is not aware of any existing lawsuits.
Extend the cost of inventory times the quantity on an inventory listing to test whether it is accurate.
Obtain a letter from an insurance company to the CPA firm stating the amount of the fire insurance coverage on buildings and equipment.
Examine an insurance policy stating the amount of the fire insurance coverage on buildings and equipment.
Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of gross margin relative to the preceding year.
Obtain information about internal control by requesting the client to fill out a questionnaire.
Trace the total in the cash disbursements journal to the general ledger.
Watch employees count inventory to determine whether company procedures are being followed.
Examine a piece of equipment to make sure that a major acquisition was actually received and is in operation.
Examine corporate minutes to determine the authorization of the issue of bonds.
Obtain a letter from management stating that there are no unrecorded liabilities.
Review the total of repairs and maintenance for each month to determine whether any month’s total was unusually large.

Answer 1

Audit Procedure	Cycle	Type of Audit Evidence	Type of Test
Calculate the ratio of sales commission expense to sales as a test of sales commissions.	Audit	Analytical procedures	Substantive analytical procedures
1. Review the accounts receivable with the credit manager to evaluate their collectibility.	Audit	Inspection of records and documents	Substantive test of account balances
Compare a duplicate sales invoice with the sales journal for customer name and amount.	Audit	Inspection of records and documents	Substantive test of transaction
Obtain a written statement from a bank stating that the client has $15,671 on deposit and liabilities of $500,000 on a demand note.	Audit	Confirmation	Substantive test of details of balance
Add the sales journal entries to determine whether they were correctly totaled.	Audit	Reperformance	Test of control
Count a sample of inventory items and record the amount in the audit files.	Audit	Inspection (tracing or Vouching)	Substantive test od details of balance
Obtain a letter from the client’s attorney addressed to the CPA firm stating that the attorney is not aware of any existing lawsuits.	Audit	Inquiry and Confirmation	Tests of control
Extend the cost of inventory times the quantity on an inventory listing to test whether it is accurate.	Audit	Inspection of documents and records	Substantive test of details of balance
Obtain a letter from an insurance company to the CPA firm stating the amount of the fire insurance coverage on buildings and equipment.	Audit	Confirmation	Substantive test of details of balance
Examine an insurance policy stating the amount of the fire insurance coverage on buildings and equipment.	Accounting	-	-
Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of gross margin relative to the preceding year.	Accounting (to Know the performance)and Audit	Analytical procedures	Analytical procedures
Obtain information about internal control by requesting the client to fill out a questionnaire.	Audit	Confirmation	Test of control
Trace the total in the cash disbursements journal to the general ledger.	Accounting(to know whether the entries are posted accurately) and Audit	Inspection	Substantive test of details of balance
Watch employees count inventory to determine whether company procedures are being followed.	Audit	Inspection of records and documents	Test of control
Examine a piece of equipment to make sure that a major acquisition was actually received and is in operation.	Audit	Inspection of records and documents	Substantive test of details of balance
Examine corporate minutes to determine the authorization of the issue of bonds.	Audit	Inspection of records and documents	Test of control
Obtain a letter from management stating that there are no unrecorded liabilities.	Audit	Inquiry and confirmation	Substantive test of details of account balances
Review the total of repairs and maintenance for each month to determine whether any month’s total was unusually large.(Please tey to understand as answer to question is written below) Cycle:Audit Tpye of evidence:Analytical procedure Type of test:Aalytical procedures END