UPDATED AUDITING SHORT ANSWER CHAPTER 10,11,13,14

Question 1

Ch. 10

When auditing cash, what assertion is the most important, and how can we test this?

Answer 1

Existence.

We can test this through Vouching, Inquiries, Physical examination

Question 2

Ch. 10

When auditing the revenue process, what are the test of controls?

Answer 2

Inquiry of client personnel
Inspection of documents and records
Observations of the operation of the control
Walkthroughs
Reperformance of the control activities

Question 3

Ch. 10

What are substantive analytical procedures and test of details used for?

Answer 3

Substantive analytical procedures - are used to examine plausible relationships among revenue related accounts.

Tests of details - focus on transactions, account balances, or disclosures. Tests of details concentrate on the ending balance for accounts receivable and related accounts as well as related disclosures.

Question 4

Ch. 10

When the auditor does not receive responses to positive confirmations, alternative audit procedures are used. These alternative procedures include:

Answer 4

Examination of specific subsequent cash receipts
Examination of shipping documentation
Examination of other client documentation

Question 5

Ch. 10

Five-Step Approach to Revenue Recognition

Answer 5

Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when the entity satisfies a performance obligation.

Question 6

Ch. 10

Positive Confirmation

Answer 6

Requests that customers indicate whether they agree with the amount due to the client. A response is expected whether the customer agrees or disagrees with the balance indicated.

Question 7

Ch. 10

Negative Confirmation

Answer 7

Requests that the customer respond only when they disagree with the amount due to the client. Negative confirmations are used when the client has many small account balances and control risk is assessed as low.

Question 8

Ch. 11

Overview of the Purchasing Process

Answer 8

Purchase requisition
Purchase order
Receiving report and liability recorded
Vendor

Question 9

Ch. 11

When auditing the Purchasing Process, what are examples of test of controls for the following:

Occurence
Completeness
Authorization
Accuracy
Cutoff
Classification
Presentation

Answer 9

Occurrence - Observe and evaluate proper segregation of duties

Completeness - Review procedures for accounting for numerical sequence of purchase orders.

Authorization - Examine purchase requisitions or purchase orders for proper approval.

Accuracy - Recompute the mathematical accuracy of vendor invoice.

Cutoff - Compare the dates on receiving reports with the dates on the relevant vouchers.

Classification - Review purchases journal and general ledger for reasonableness.

Presentation - Review purchases journal and general ledger for proper aggregation or disaggregation of purchase transactions, and determine if disclosure is needed

Question 10

Ch. 11

What are the test of details when auditing the purchasing process?

Answer 10

1. Examining Purchase Orders and Invoices:
2. Reviewing Payments:
3. Assessing Internal Controls:
4. Sales Contracts

Question 11

Ch. 10

What are the test of details when auditing the revenue process?

Answer 11

1. Verifying Existence and Occurrence:
2. Testing Completeness:
3. Testing Accuracy:
4. Testing Valuation:

Question 12

Ch. 13
What are the Tests of Details when auditing the inventory management process?

Answer 12

Production Schedule
Receiving Report
physical inventory counts
Sales Invoices

Question 12

Ch. 13

When auditing the inventory management process, what are examples of test of controls for the following:

Occurrence
Completeness
Authorization
Accuracy
Cutoff
Classification
Presentation

Answer 12

Occurrence - Observe and evaluate proper segregation of duties

Completeness - Review and test entity’s procedures for consignment goods.

Authorization - Review authorized production schedules

Accuracy - Review and test procedures for taking physical inventory

Cutoff - Review and test procedures for processing inventory

Classification - Review the procedures and forms used to classify inventory

Presentation - Review inventory reports, general ledger and chart of accounts for proper aggregation or disaggregation

Question 13

Ch. 14

When auditing the Investing process, what are examples of test of controls for the following:

1. Inquiry:
2. Observation
3. Inspection

Answer 13

Auditors ask questions to personnel responsible for investment controls to understand their operation and effectiveness.

Auditors physically observe control activities being performed to verify their effectiveness in practice.

Auditors review relevant documents and records to assess control procedures and documentation.