HOMEWORK AUDIT

Exercise 4.24:
a) Appropriate audit evidence obtained was not sufficient to support the conclusion.
All material assesrtions must be verified to conclude that the balance is fairly
stated. Gillian should have picked items from the factory used for test counting
and checked to the client’s inventory sheets to test for completeness. Besides,
there are no actions carried out on the valuation and allocation assertion.
b) Appropriate audit evidence obtained was not sufficient to support the conclusion.
The finding showed that there were three instances had not been signed so this
failed for the test of existence. In addition, the prices were correct is not relevant
when checking the existence assertion.
c) Appropriate audit evidence obtained was not sufficient to support the conclusion.
Gillian has not considered the possible effect of the sales returns on other
accounts, such as valuation and allocation of the inventory of Product XLP,
collectability of accounts receivable in relation to sales of Product XLP and the
need for a provision for warranty if the goods are faulty.
d) Appropriate audit evidence obtained was not sufficient to support the conclusion.
The risk with the advertising expenses is understatement.
e) Appropriate audit evidence obtained was not sufficient to support the conclusion.
Only 20 payments were selected and three of them were found to be not properly
accrued, this may affect the assessment of controls to ensure that expenses are
correctly accrued.
Exercise 9.16:
Assertion Substantive audit procedures
Accuracy  Trace a sample of sales to the receipt book to ensure that
details, particularly cash amount, are recorded correctly.
Completeness  Undertake analytical procedures based on the average
number of billable hours (this might detect non-recording
revenue).
 Test samples of receipts from the receipt book and ensure
that all have been recorded.
 Check all pre-numbered sales receipts are accounted for.
Occurence  Obtain written confirmation of services performed
 Trace sales recorded in the accounts to the receipt book.
Exercise 9.18:
a) The procedures used to test the existence assertion for accounts receivable are:
- Confirm accounts receivable from customers in writing.
- Verify whether the amount in outstanding receivables is subsequently received.
- Test from subsidiary ledger to supporting documentation of sale.
b) If the internal control of Top Dog were operating effectively, the auditor may
identify controls that would help to reduce the risk of material misstatement for
these assertions, and then test those controls and reduce the extent of the
substantive testing procedures if they are effective.