Question 7 (11 marks)

Wheres Spring Ltd. (WS) is a wholesaler for winter accessories, including hats, scarves, and mitts. Its customers are retail chains and stores. When orders are shipped to its customers, the warehouse manager signs two copies of the prenumbered bill of lading to confirm the shipment. The first copy is sent to the billing department for invoicing, where invoices issued are cross-referenced to the bill of lading number. The second copy is filed in the warehouse office.

Required:

1. Describe the steps that WSs auditor should perform in conducting the control test to support the occurrence/existence assertion for sales and accounts receivable, if sampling will be used. (5 marks)
2. Using the control test described in part (a), explain how to expand the test to provide substantive evidence. Describe what type of testing this is. (4 marks)
3. Explain why an audit must always include some substantive testing, irrespective of the risks of material misstatement. (2 marks)