RUBIATUL ADAWIYAH BINTI MOHD ASHARI (264831)

GROUP C

BKAA3023
Take Home Exercise 6

1. In obtaining audit evidence in support of financial statement assertions, the auditor

develops specific audit procedures to test those assertions.

Required:
Select the most appropriate audit procedure from the list below and enter the number
in the appropriate place on the grid. (An audit procedure may be selected once, more
than once or not at all).

Audit Procedure:
i. Compare selected amounts from the accounts payable listing with the voucher and
supporting documents.
ii. Review draft copies of the financial statements.
iii. Search for unrecorded liabilities.
iv. Select a sample of receiving documents for a few days before and after year-end.
v. Confirm accounts payable.
vi. Obtain a listing of the accounts payable and agree total to general ledger control
account.

Specific Assertion Audit Procedure

a. Determine whether all accounts ii
payable are properly valued
(Valuation)
b. Verify that recorded accounts iii
payable include all amounts owed
to suppliers (Completeness).
c. Verify that all accounts payable iv
are recorded in the correct period
(Cut-off).
d. Determine whether accounts vi
payable have been properly
accumulated from the journal to
the general ledger (Valuation).
e. Determine whether recorded i
accounts payable are valid
(Occurrence).

2. Megan is the auditor of the RCorp Bhd. Megan is considering the audit work to be
performed in the accounts payable area for the current year’s engagement. The prior
year’s working papers show that confirmation requests were mailed to 100 of RCorp.’s
1,000 suppliers. The selected suppliers were based on Megan’s sample, which was
designed to select accounts with large balances. A substantial number of hours are spent
by RCorp. and Megan in resolving relatively minor differences between the confirmation
replies and RCorp.’s accounting records. Alternative audit procedures were used for
suppliers who did not respond to the confirmation requests.
RUBIATUL ADAWIYAH BINTI MOHD ASHARI (264831)
GROUP C

Required:
(a) Explain THREE (3) accounts payable audit objectives that Megan must consider in
determining the audit procedures to be followed.
• Completeness – control should be established when recording the
purchases and liabilities to ensure that all transactions are recorded.
• Existence – to ascertain the validity of the amounts appearing in the books
of accounts and verify the same with supporting documents, vouchers and
external confirmation.
• Accuracy – controls are also established to ensure that the purchase
amounts are recorded accurately.

(b) Discuss TWO (2) situations in which Megan should use accounts payable
confirmations procedure.
• If the internal control is not effective and there some of fictitious
transactions are occur in the account payable records.
• If the statements are not easily obtained by the vendor.

(c) Explain THREE (3) substantive audit procedures that should be applied by Megan
in examining the trade accounts payable with no confirmation replied.
• Obtain a trial balance of account payable as of the balance sheet date and
reconcile with the general ledger.
• Vouch balances payable to selected creditors by inspection of supporting
documents.
• Draw the client by prepared accounts payable schedule from the general
ledger accounts payable controlling account.

(d) Explain ONE (1) difference between positive and negative confirmation.

Positive confirmation requires supporting information despite the accuracy of the

original records while the negative confirmation requires a response only if there
is a discrepancy.

(e) Give your reason why confirmation is normally considered as a more reliable
evidence than inquiry of the client.

Confirmation are normally more reliable evidence than inquiries of the client
because they are from an independent third party. Thus, they are free from any
bias which can be generally found in internal inquiries.