CASE 5 – Evidence
1. For each of the following specific audit procedures, indicate the type of audit procedure it represents: (1) inspection of records or documents, (2) inspection of tangible assets, (3) observation, (4) inquiry, (5) confirmation, (6) recalculation, (7) reperformance, (8) analytical procedures, and (9) scanning. a. Sending a written request to the client’s customers requesting that they report the amount owed to the client. a. Confirmation
i. Existence; trying to determine if A/R is overstated. b. Examining large sales invoices for a period of two days before and after year-end to determine if sales are recorded in the proper period. b. Inspection of document/records
ii. Cutoff; make sure sales are recorded in proper period. c. Agreeing the total of the accounts receivable subsidiary ledger to the accounts receivable general ledger account. c. Reperformance-does total agree?
d. Discussing the adequacy of the allowance for doubtful accounts with the credit manager. d. Inquiry
iv. Valuation and allocation
e. Comparing the current-year gross profit percentage with the gross profit percentage for the last four years. e. Analytical procedures
v. Valuation and allocation
f. Examining a new plastic extrusion machine to ensure that this major acquisition was received. f. Inspection of tangible assets
g. Watching the client’s warehouse personnel count the raw materials inventory. g. Observation
h. Performing test counts of the warehouse personnel’s count of the raw material. h. Reperformance
viii. Valuation and allocation
i. Obtaining a letter from the client’s attorney indicating that there were no lawsuits in progress against the client. i. Confirmation
ix. Existence/valuation and allocation
j. Tracing the prices used by the client’s billing program for pricing sales invoices to the client’s approved price list. j. Inspection of documents
k. Reviewing the general ledger for unusual adjusting entries. k. Scanning
xi. Valuation and allocation.
2. For each of the audit procedures listed in 1 above, identify the primary assertion being tested.
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