Question:
This simulation integrates concepts first presented in Chapter 5 (see Figure 5.1 for Assertions about Account Balances) and information from throughout the procedural chapters (Chapters 10 through 16) rather than only Chapter 16 coverage. This problem uses only the four account balances assertions from Figure 5.1; it does not include the cutoff assertion.
Accordingly, procedures that might be considered cutoff procedures would generally be considered as addressing either or both of the existence or completeness assertions.
For each of the account balances and associated assertions below, select the audit procedure from the list provided that provides the most appropriate audit evidence for the account assertion.
Transcribed Image Text:
Account Balances
1. Accounts
receivable
2. Inventory
3. Fixed Assets
4. Accounts payable
5. Cash
Assertion
Completeness
Valuation and
allocation
Rights and
Obligations
Completeness
Existence
Procedure
a. Review confirmation of accounts receivable bal-
ances and agree to accounts receivable subledget
b. Review list of accounts written off during year.
c. Review schedule of bad debt expense.
d. Trace individual customer account transactions to
sales invoice.
e. Trace sales invoice and shipping documents just
before year-end to customer account transactions.
a. Examine invoices from suppliers.
b. Examine invoices paid subsequent to year-end and
trace to subsidiary ledger.
c. Select items from inventory listing and locate the
items in the warehouse.
d. Select items located in the inventory warehouse
and trace to inventory listing.
e. Trace sales invoices and shipping documents just
before year-end to customer accounts.
a. Interview plant manager regarding fixed asset
additions during the year.
b. Recalculate partial year depreciation for fixed asset
acquisitions.
c. Trace fixed asset item to fixed asset master control
listing.
d. Vouch fixed asset acquisitions to purchase
invoices.
e. Vouch fixed asset acquisitions to related cash
disbursement.
a.
Compare aging of accounts payable to prior
periods.
b. Confirm accounts payable balance with suppliers.
c. Examine invoices paid subsequent to year-end and
trace to subsidiary ledger.
d. Trace individual payable transaction to purchase
order.
e. Vouch invoices for the purchase of supplies to
receiving documents.
a. Agree bank statement to the subsidiary ledger
b. Agree cash balance per the bank reconciliation to
the year-end bank statement.
c. Agree cash balance to online year-end bank
statement.
d. Recalculate bank statement balance including
interest receivable.
e. Trace deposit per the bank statement to the cash
subsidiary ledger.