Professional Documents
Culture Documents
substantive
tests of transactions audit procedures for acquisitions and cash disbursements
are to be
used in the audit of Ward Publishing Company. You concluded that internal
control
appears effective and a reduced assessed control risk is likely to be cost
beneficial. Ward’s
active involvement in the business, good separation of duties, and a competent
controller
and other employees are factors affecting your opinion.
This study source was downloaded by 100000811481860 from CourseHero.com on 10-22-2022 02:52:06 GMT -05:00
https://www.coursehero.com/file/22636408/258594582-Kasus-18-32/
(8) review purchase orders and/or purchase requisitions for proper approval.
(9) verify prices and recalculate footings and extensions on invoices.
(10) compare quantities and descriptions on purchase orders, receiving reports,
and vendors’ invoices to the extent applicable.
(11) examine vendors’ invoices and receiving reports to determine that the
check
numbers are included and the documents are marked “paid” at the time of
check signing.
c. Trace postings to the accounts payable master file for name, amount, and
date.
10. Select a sample of receiving reports issued during the year and trace to
vendors’
invoice and entries in the acquisitions journal.
a. Compare type of merchandise, name of vendor, date received, quantities, and
amounts.
b. If the transaction is indicated in the acquisitions journal as paid, trace the
check
number to the entry in the cash disbursements journal. If unpaid, investigate
reasons.
c. Trace transactions to accounts payable master file, comparing name, amount,
and date.
Prepare all parts of a sampling data sheet (such as the one in Figure 15-2 on
page 490) through
the planned sample size for the preceding audit program, assuming that a line
item in the
cash disbursements journal is used for the sampling unit. Use either
nonstatistical or
attributes sampling. For all procedures for which the line item in the cash
disbursements
journal is not an appropriate sampling unit, assume that audit procedures were
performed
on a nonsampling basis. For all tests of controls, use a tolerable exception rate of
5%, and
for all substantive tests of transactions, use a rate of 6%. Use an ARACR of 10%,
which is
considered medium. Plan for an estimated population exception rate of 1% for
tests of con trols and 0% for substantive tests of transactions.
Prepare the data sheet using the computer (instructor option—also applies to
Part II).
Part II
Assume a sample size of 50 for all procedures, regardless of your answers in Part
I. For
other procedures, assume that an adequate sample size for the circumstance
was selected.
The only exceptions in your audit tests for all tests of controls and substantive
tests of
transactions audit procedures are as follows:
This study source was downloaded by 100000811481860 from CourseHero.com on 10-22-2022 02:52:06 GMT -05:00
https://www.coursehero.com/file/22636408/258594582-Kasus-18-32/
1. Procedure 2—Two large transactions were identified as being unusual.
Investigation
determined that they were authorized acquisitions of fixed assets. They were
both
correctly recorded.
2. Procedure 9b(1)—A purchase order was not attached to a vendor’s invoice.
The pur chase order was found in a separate file and determined to be approved
and appropriate.
3. Procedure 9b(5)—Six vendors’ invoices were not initialed as being internally
verified. Three actual misclassifications existed. The controller explained that he
often did not review codings because of the competence of the accounting clerk
doing the coding and was surprised at the mistakes.
a. Complete the sampling data sheet from Part I using either nonstatistical or
attributes
sampling.
b. Explain the effect of the exceptions on tests of details of accounts payable.
Which
balance-related audit objectives are affected, and how do those objectives, in
turn,
affect the audit of accounts payable?
c. Given your tests of controls and substantive tests of transactions results, write
an audit
program for tests of details of balances for accounts payable. Assume:
(1) The client provided a list of accounts payable, prepared from the master file.
(2) Acceptable audit risk for accounts payable is high.
(3) Inherent risk for accounts payable is low.
(4) Analytical procedure results were excellent.
Ward Publishing Company — Part III (See Case 18-32 for Parts I and II)
19-28 (Objectives 19-1, 19-2, 19-5) Examine the tests of controls and
substantive tests of
transactions results, including the sampling application in Case 18-32 (pp. 630–
632), for
Ward Publishing Company. Assume that you have already reached several
conclusions.
1. Your tests of details of balances for accounts payable are completed, and you
found
no exceptions.
2. Acceptable audit risk for property, plant, and equipment and all expenses is
high.
3. Inherent risk for property, plant, and equipment is high because in the current
year, the
client has acquired a material amount of new and used printing equipment and
has
traded in older equipment. Some of the new equipment was ineffective and
This study source was downloaded by 100000811481860 from CourseHero.com on 10-22-2022 02:52:06 GMT -05:00
https://www.coursehero.com/file/22636408/258594582-Kasus-18-32/
returned;
an allowance was received on others. Inherent risk for expense accounts is low.
4. New computer equipment and some printing equipment are being leased. The
client
has never leased equipment before.
5. Analytical procedures for property, plant, and equipment are inconclusive
because of
the large increases in acquisition and disposal activity.
6. Analytical procedures show that repairs, maintenance, and small tools
expenses have
increased materially, both in absolute terms and as a percentage of sales. Two
other
expenses have also materially increased, and one has materially decreased.
7. In examining the sample for tests of controls and substantive tests of
transactions,
you observe that no sample items included any property, plant, and equipment
or
lease transactions.
a. Explain the relationship between the tests of controls and substantive tests of
trans actions results in Case 18-32 and the audit of property, plant, and
equipment and leases.
b. How will the tests of controls and substantive tests of transactions results and
your
conclusions (1 through 7) affect your planned tests of details for property, plant,
and
equipment and leases? State your conclusions for each balance-related audit
objective.
Do not write an audit program.
c. Explain the relationship between the tests of controls and substantive tests of
trans actions results in Case 18-32 and the audit of expenses.
d. How will the tests of controls and substantive tests of transactions results and
your
conclusions (1 through 7) affect your planned tests of details of balances for
expenses?
Do not write an audit program.
Answer:
This study source was downloaded by 100000811481860 from CourseHero.com on 10-22-2022 02:52:06 GMT -05:00
https://www.coursehero.com/file/22636408/258594582-Kasus-18-32/
not appropriate for Procedures 1-8 due to the nature of the procedures. In this
case, audit sampling is also not appropriate for
18-32 - Part I (continued) Procedure 10 because the sampling unit is a line item
in the cash disbursements journal. The sampling data sheet that follows
represents an attributes sampling approach. The only differences between this
approach and a nonstatistical sampling approach are the estimate of ARACR and
the determination of sample sizes. See the footnotes to the sampling data sheet
for further explanations. A sampling data sheet using attributes sampling follows:
PLANNED AUDIT
INITIAL
SAMPLE
DESCRIPTION OF ATTRIBUTE EPER TER ARACR* SIZE**
9.a. Entry in CD journal agrees 0% 6% 10% 38
with details on cancelled
check.
9.b.(1) All supporting documents 1% 5% 10% 77
attached to vendor’s invoice.
9.b.(2) Documents agree with 0% 6% 10% 38
disbursements.
9.b.(3) Entry in CD journal agrees 0% 6% 10% 38
with details on vendor's
invoice.
9.b.(4) Discount was taken as 0% 6% 10% 38
appropriate.
9.b.(5) Vendor's invoice initialed. 1% 5% 10% 77
9.b.(6) Account coding reasonable. 0% 6% 10% 38
Purchases approved by
9.b.(7) 1% 5% 10% 77
Ward.
P.O. or P.R. properly
9.b.(8) 1% 5% 10% 77
approved.
9.b.(9) Prices, footings and 0% 6% 10% 38
extensions are correct.
9.b.(10) Details on supporting 0% 6% 10% 38
documents agree.
9.b.(11) Documents properly 1% 5% 10% 77
completed and cancelled
upon payment.
* For a nonstatistical sampling data sheet, ARACR columns should indicate “medium” for all attributes.
** For a nonstatistical sampling data sheet, students’ determination of sample size will vary. While no one
answer
is correct, the sample size chosen for each attribute should reflect the EPER, TER and ARACR for that attribute.
This study source was downloaded by 100000811481860 from CourseHero.com on 10-22-2022 02:52:06 GMT -05:00
https://www.coursehero.com/file/22636408/258594582-Kasus-18-32/
Part II
This study source was downloaded by 100000811481860 from CourseHero.com on 10-22-2022 02:52:06 GMT -05:00
https://www.coursehero.com/file/22636408/258594582-Kasus-18-32/
to supporting documents and confirmation of accounts payable and
reconciliation to vendor's statements. Exception 3 is a control deviation
where one-half of those items also contain monetary misstatements.
Misclassification is a serious misstatement. However, it relates to the debit
entry, not the credit to accounts payable. Tests supporting charges to
assets and expense accounts will need to be increased, but tests of
accounts payable will probably not be affected.
c. On the following page is an audit program for accounts payable. The
balance-related audit objectives tested by each procedure are indicated.
Because the appropriate audit risk for accounts payable is high and
inherent risk is low, and because analytical review procedures were
excellent, detailed tests should be held to a minimum. The exception to
this is for procedure 3; this has not been reduced because of the exception
in procedure 9.b.(1)
BALANCE-RELATED AUDIT
OBJECTIVES
Existence
Completeness
Accuracy
Classification
Cutoff
Obligations
Detail tie-in
This study source was downloaded by 100000811481860 from CourseHero.com on 10-22-2022 02:52:06 GMT -05:00
https://www.coursehero.com/file/22636408/258594582-Kasus-18-32/
Note: Rights and Realizable value are not applicable to accounts payable. No audit work
was
considered necessary for obligations
This study source was downloaded by 100000811481860 from CourseHero.com on 10-22-2022 02:52:06 GMT -05:00
https://www.coursehero.com/file/22636408/258594582-Kasus-18-32/
Powered by TCPDF (www.tcpdf.org)