The purpose of substantive testing is to verify the assertions made by management in the financial statements


Question Description:

25

The purpose of substantive testing is to verify the assertions made by management in the financial statements. Consider the following unrelated audit tests, which a CGA performed for the audit of the financial statements of a client with a fiscal year end of December 31, 2013. Required For each of the six audit procedures listed below, identify the primary management assertion being tested and the account balance being verified, name the specific audit procedure being used, and state the quality of the audit evidence obtained (high, moderate, or low), explaining why the evidence is the quality level you specify. Organize your answer with these headings: Management assertion and account balance Audit procedure Quality of audit evidence a. Sent negative confirmation requests to a sample of customers with unpaid balances at December 31, 2013. b. During the company’s normal physical inventory taking on December 31, 2013, selected items from the client’s inventory listing and performed test counts. c. Vouched property, plant, and equipment additions to supporting documents, including the supplier invoice, shipping, and payment documents. d. Calculated an estimated total managerial payroll expense by multiplying the average salary by the number of managers. Compared the estimated payroll expense with actual and discussed the cause for the 20% variance with client management. e. Recalculated depreciation expense related to property, plant, and equipment. f. Verified that the bank balance as indicated on the December 31, 2013, bank reconciliation agreed to the bank confirmation. ATTACHMENT PREVIEW Download attachment Assignment 1, question4 assertion.xlsx Question (Audit Procedure Required) a. Sent negative confirmation requests to a sample of customers with unpaid balances at December 31, 2013 b. During the company’s normal physical inventory taking on December 31, 2013, selected items from the client’s inventory listing and performed test counts. Management Assertion and account balance Completeness-all assets and liabilities that should have been recorded have been recorded Occurrence-transactions and events that have Inspection (Physical inspection of intangible been recorded have occurred and pertain to the Assets)-Auditor’s test counts of physical entity inventory quantities on hand at year end c. Vouched property, plant, and equipment additions to supporting documents, including the supplier invoice, shipping, and payment documents d. Calculated an estimated total managerial payroll expense by multiplying the average salary by the number of managers. Compared the estimated payroll expense with actual and discussed the cause for the 20% variance with client management. e. Recalculated depreciation expense related to property, plant, and equipment f. Verified that the bank balance as indicated on the December 31, 2013, bank reconciliation agreed to the bank confirmation. Audit Procedure Confirmation (Statement by independed parties-Obtain written confirmation of A/R balance and detail from customer Confirmation(Statement by independent parties)-Obtain written confirmantion of loan amount, interest, collateral and payment dates from lender Completeness-all transactions and events that should have been recorded have been recorded Classification-transactions and events have been Recalculation-perform data entry procedure recorded in the proper accounts with automated missing data control Accuracy and valuation- financial and other information are disclosed fairly and at appropriate amounts Recalcualtion-recompute amortization expense using declining balance method Enquiry(Statements by Auditee personnel)Enquire about frequency of bank reconciliation procedures and which employee totals cash receipts and deposits them to the bank Quality of audit evidence(high, moderate, low) MODERATE-external documentation with good external controls MODERATE-internal documentation with good internal c…

Answer

25