The chapter described an audit by Stuart and Steigler for Mystery Bookstore. Refer to this example. a.

Question:

The chapter described an audit by Stuart and Steigler for Mystery Bookstore. Refer to this example.

a. Describe how you might test the controls identified in the chapter. Think about the relevant assertions as you consider the controls to test. If testing controls is not possible, consider alternative procedures the auditor might use to gather evidence needed to determine if misstatements have occurred.

(1) The daily reconciliation between sales recorded in the cash registers and cash received for the day.

(2) The daily reconciliation between goods shipped for Internet sales and goods invoiced.

(3) The year-end physical count of inventory.

(4) The lower of cost or market inventory valuation at year-end.

(5) The process of identifying contingent liabilities.

(6) The year-end adjusting process for the financial statements.

b. What is true about the procedures where internal control testing is possible?

When does the auditor use substantive testing in place of control testing?

Contingent liabilities
A contingent liability is an obligation of business related to an uncertain future event. The business must record it in its financial statements if the amount can be reliably estimated and it is probable that amount will be paid by business as a...