AUDITING I HANDOUT PROBLEM 6 Score Name Section Essay Question (10 points). The

Question

AUDITING I HANDOUT PROBLEM 6 Score Name Section Essay Question (10 points). The following audit procedures are found in audit programs addressing the purchases and disbursements cycle AUDIT PROCEDURES FOR PURCHASES AND DISBURSEMENTS CYCLE (a) Examine payments to vendors following yearendand then review any accounts payable that still remain unpaid that were outstanding as of the audit date. (b) Review a report of all accounts payable items that are not matched by the company's automated matching system. Select a sample of these items and trace them to vendor payments and supporting documentation. (c) Using audit software, prepare a report of all debits that have been made to the Accounts Payable account that were for transactions other than payments to vendors. Select a sample of these items and examine the supporting documentation for the transaction. and inventory levels by product line. confirmations to vendors to confirm the outstanding balance shown in the client's (d Using audit software, download the client data to create a report that shows monthly sales (e) Select a sample of outstanding accounts payable as of the audit date and send negative accounting records. REQUIRED: For each of the audit procedures listed above, indicate the following. (1) (2) The management assertion being tested by the procedure. Whether the procedure is a test ofcontrols, substantive test,or a dual purpose test.

Explanation / Answer

(A) (i)The representations made by the management in the form recognising the accounts payable outstanding in the books at a specified time period is equivalent to the assertion made by it which shall be relied as a base for further audit procedures and hence in the given case,the process of auditing the financial figures of outstanding accounts payable recognised in the books and testing by their actual realisations in coming years shall be considered to have tested the management assertion.

(A)(ii). Such audit procedure performed as above satisfies both the purpose of ascertaining the accuracy of the books and the financial statement to ensure that they are free from material misstatements . Such audit procedure applied tests the effectiveness of the control used by the client entity to prevent or detect material misstatements and Depending on the results of this test, auditors may choose to rely upon a client's system of controls as part of their auditing activities. Further a substantive procedure is a process, step, or test that creates conclusive evidence regarding the completeness, existence, disclosure, rights, or valuation (the five audit assertions) of assets and/or accounts on the financial statements or the accounts payable as in the given case.

Therefore the audit procedure applied above serves as a dual purpose test.

(B)(i). In the given case, testing of samples of the outstanding accounts payables that are left unmatched with any system generated liabilities by referring to their actual documentations shall be considered to have tested the management assertions of the figures represented in the financial statements.

(B)(ii). The said audit procedure applied shall ensure the accuracy of the system applied controls by referring to external documentations as well as their completeness and correctness by verifying the actual amounts and hence will be considered to be a dual purpose test.

(C)(i). The vouching and verifications of sample of amounts debited using an audit software shall be considered as a sustantive audit procedures applied as will ensure the completeness and correctness of the disclosures and representations made by the management in the books.

(D) Generation of client data for monthly sales and inventory level for each product using an audit software shall not be said to have tested any of the management's representations. And such audit program shall help the audit to test any major deviations from the normal levels and the controls applied are effective. Therefore it will be considered to be a test of controls applied by the client.

(E) Using external confirmations as a tool for audit of the books shall be considered to have tested the management representations, as well as accuracy,correctness and completeness of disclosure and records and therefore it shall serve as a dual purpose test.

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