A6 Other Transaction Cycles

Question 1

Interest Expense - PPE Cycle

Answer 1

Comparing interest expense with bond payable amount for reasonableness provides evidence that all interest expense was included and that outstanding balance of the bonds payable is reasonable, as well as providing limited evidence concerning the amortization of bond discounts or premiums.

Question 2

Completeness - PPE Cycle

Answer 2

Completeness is supported by the auditor tracing the serial numbers on equipment (source) to a nonissuer subledger (book).

Question 3

Existence - PPE Cycle

Answer 3

This is verified by vouching from the records & statements back to the supporting documents. This requires a review of records & the source.

This also ensures that assets, liabilities, & equity interest exist at a given date. Unrecorded retirements = test of existence = records to source

Question 4

Liens on Equipment - PPE Cycle

Answer 4

If an auditor discovers that the original insurance policy on plant equipment is not available for inspection, this is most likely indicate that there is a lien on the plant equipment, since the original policy would likely be in possession of the lien holder.

Question 5

Completeness Test - Payroll Cycle

Answer 5

Tested with Payroll accruals when performing search for unrecorded liabilities. The auditor should trace a sample of source documents (time cards) to records (payroll register).

Question 6

Valuation & Allocation Test - Payroll Cycle

Answer 6

Tested when the auditor recalculates year end payroll accruals and compares it to the recorded accrual. Pay rates are also verified with employee records

Question 7

Existence Test - Payroll Cycle

Answer 7

Tested by vouching amounts from the clients calculation of payroll accruals to supporting documents (time cards & employee files)

Question 8

Rights & Obligations Test - Payroll Cycle

Answer 8

Tested by examining supporting documentation (employee files) to verify that payroll accruals are an obligation of the entity.