ASSIGNMENT
The following are nine situations, each containing two means of accumulating evidence:
1. Confirm receivables with consumers versus confirming accounts receivable with business organizations.
2. Physically examine 3-inch steel plates versus examining electronic parts.
3. Examine duplicate sales invoices when several competent people are checking each other’s work versus examining documents prepared by a competent person on a one- person staff.
4. Physically examine inventory of parts for the number of units on hand versus examining them for the likelihood of inventory being obsolete.
5. Discuss the likelihood and amount of loss in a lawsuit against the client with client’s
in-house legal counsel versus discussion with the CPA firm’s own legal counsel.
6. Confirm the oil and gas reserves with a geologist specializing in oil and gas versus
confirming a bank balance.
7. Confirm a bank balance versus examining the client’s bank statements.
8. Physically count the client’s inventory held by an independent party versus confirming the count with an independent party.
9. Obtain a physical inventory count from the company president versus physically
counting the client’s inventory.
a. Identify the six factors that determine the reliability of evidence.
b. For each of the nine situations, state whether the first or second type of evidence is
more reliable.
c. For each situation, state which of the six factors affected the reliability of the evidence.
Following are 10 audit procedures with words missing and a list of
several terms commonly used in audit procedures.
Audit Procedures
1. ______ the unit selling price times quantity on the duplicate sales invoice and compare the total to the amount on the duplicate sales invoice.
2. ______ the long-term debt footnote to determine that all required disclosures are accurately described.
3. ______ whether the accounts receivable bookkeeper is prohibited from handling cash.
4. ______ the ratio of cost of goods sold to sales and compare the ratio to previous years.
5. ______ the sales journal and _______ the total to the general ledger.
6. ______ the sales journal, looking for large and unusual transactions requiring investigation.
7. ______ of management whether all accounting employees are required to take annual vacations.
8. ______ all marketable securities as of the balance sheet date to determine whether they equal the total on the client’s list.
9. ______ the balance in the bank account directly with the East State Bank.
10. ______ a sample of duplicate sales invoices to determine if the controller’s approval is included and ______ each duplicate sales invoice to the sales journal for agreement of name and amount.
Terms
a. Examine
b. Scan
c. Read
d. Compute
e. Recompute
f. Foot
g. Trace
h. Compare
i. Count
j. Observe
k. Inquire
l. Confirm
a. For each of the 12 blanks in procedures 1 through 10, identify the most appropriate
term. No term can be used more than once.
b. For each of the procedures 1 through 10, identify the type of evidence that is being used.
