account-For the following audit procedures, identify whethe

by | Aug 20, 2025 | Business

Auditing – Exam 2
1.) For the following audit procedures,
identify whether the procedures would be classifed as a Risk Assessement
Procedure, a Test of
Controls
Procedure, Substantive Procedure, or a
combination of Test of Controls and Substantive (Dual Purpose)
a) Inspect a sample of purchase orders in
order to determine whether the proper approval signatures have been
documented
b) Make inquiries of management about the
overall objectives of the entity
c) Reperform an accounts receivable
reconciliation (agree to the ledger and support reconciling items) and note
the presence of a review
signature on
the reconciliation
d) Perform a “spike analysis” (track
sales per day for 3 weeks before and 3 weeks after year end) in order to assess the reasonableness
of the year
end sales account
e) Confirm
the accounts receivable balance by sending confirmations to the client’s
customers
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2.)
Identify which component of internal control is being described in each of
the following descriptions:
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a) The set of standards and procedures
on which the internal control of an organizaiton is built.
b) Specific activities within the
internal control system that ensure the timely prevention and detection
of
misstatements in the financials.
c) Assessing the quality of internal
control system over time
d) Managements process to identify
events that may arise and impact the entity’s ability to initiate
record and process financial
transactions
e) The accounting systems process of
identifying and recording valid transactions, describing and
communicating those transactions on
a timely basis
3.) Define substantive strategy and reliance
strategy and compare how the different
strategies relate to internal control.
Which strategy
would
best relate to a lower assessed control risk?
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4.) You are an experienced audit senior, and
the new staff person on your job does not understand what a control
deficiency is, and at what
point
we would determine a control deficiency to be either a significant deficiency
or a material weakness. Explain to the
staff what a control
deficiency
is and the relationship between control deficiency, significant deficiency,
and material weakness.
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5.) Your audit staff has found the following
information relative to a test performed on accounts receivable controls, using audit sampling
techniques.
Factor 2011 2012
Confidence level 95% 90%
Tolerable error 8% 8%
Expected error 2% 5%
Population 115,000 122,000
Explain
to your audit staff what each of the factors is, how the factors affect the
sample sizes, and how you expect the 2011 sample size to
compare
to the 2012 sample size.
You
are not required to actually calculate sample size. Just use the factors to determine how one
year would compare to the other
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6.)
In order to reduce the risk that unauthorized checks are distributed,
management has identified the following control:
ALL PURCHASE ORDERS
GREATER THAN $2,000 ARE APPROVED BEFORE PAYMENT IS MADE
For
the 2012 audit, our audit team has decided to test the control listed above
as of November 1, 2012. As such,
please perform the following
planning
procedures: a) determine the testing
objectives, and 2) define the population characteristics (including the
sampling population,
sampling
unit, and control deviation conditions – what constitutes a deviation?)
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7.) For
each of the following items, identify which of the 5 management assertions is
being tested (name only 1):
a) During the completion of the audit, the
engagement parter conducts a final review of the footnotes that accompany
the
financial
statements
b) The audit staff obtains the warehouse
managers shipping log and selects a sample of shipments to test that they
have been
properly accounted for in the general ledger
c) The audit senior sends confirmation forms
to outside warehouses in order to confirm the amount of inventory held
on
consignment.
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