Question

Below are 12 audit procedures. Classify each procedure according to the following types of audit evidence: (1) physical examination, (2) confirmation, (3) documentation, (4) observation, (5) inquiry of the client, (6) reperformance, and (7) analytical procedure.

1. Watch client employees count inventory to determine whether company procedures are being followed.
2. Count inventory items and record the amount in the audit files.
3. Trace postings from the sales journal to the general ledger accounts.
4. Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of gross margin relative to the preceding year.
5. Obtain information about the client's internal controls by asking questions of client personnel.
6. Trace column totals from the cash disbursements journal to the general ledger.
7. Examine a piece of equipment to make sure a recent purchase of equipment was actually received and is in operation.
8. Review the total of repairs and maintenance for each month to determine whether any month's total was unusually large.
9. Compare vendor names and amounts on purchase invoices with entries in the purchases journal.
10. Foot entries in the sales journal to determine whether they were correctly totaled by the client.
11. Make a surprise count of petty cash to verify that the amount of the petty cash fund is intact.
12. Obtain a written statement from the client's bank stating the client's year-end balance on deposit.

Answer 1

Audit procedures are classified based on their nature into various types of audit evidence such as physical examination, observation, documentation, inquiry, reperformance, analytical procedures, and confirmation.

Step-by-step explanation:

Classification of Audit Procedures

To classify the audit procedures into types of audit evidence, we can assign each procedure a specific type based on its nature:

1. Observation: Watch client employees count inventory to verify adherence to company procedures.
2. Physical Examination: Count inventory items and document the quantities.
3. Documentation: Trace postings from the sales journal to the general ledger accounts.
4. Analytical Procedure: Calculate ratios to assess the reasonableness of gross margins.
5. Inquiry of the Client: Ask client personnel questions to understand internal controls.
6. Reperformance: Trace disbursement journal totals to the general ledger.
7. Physical Examination: Examine equipment to confirm receipt and operational status.
8. Analytical Procedure: Review repairs and maintenance expenses for irregularities.
9. Documentation: Compare vendor information on purchase invoices with purchases journal entries.
10. Reperformance: Verify the addition of sales journal entries.
11. Physical Examination: Perform a surprise count of petty cash.
12. Confirmation: Obtain a written bank confirmation of the client's year-end balance.

Sources of information gathered during the audit must be tracked and credited properly to ensure the evidence is verifiable and reliable. The process entails a methodical collection and organization of facts to support audit decisions.