Question

1. For each of the following audit procedures, identify A- the type of audit evidence and B- the related audit objective.

a. Ask the accounts payable clerk about procedures for verifying prices, quantities, and extensions on vendors’ invoices –

b. Vouch entries in sales journal to sales invoices and related shipping documents. –

c. Examine the footnotes about the company’s policies for recording revenue transactions to determine whether the disclosures are reasonable

d. Examine expense voucher packages and related vendors’ invoices for approval of expense account classification.

e. Add the sales journal for the month of July and trace amounts to the general ledger

f. Compare the quantities on hand and unit prices on this year’s inventory count sheets with those in the preceding year as a test for large differences.

g. Test the extension of unit prices times quantity on the inventory list for a sample of items, test foot the list, and compare the total to the general ledger.

h. Trace selected quantities from the inventory list to the physical inventory to make sure that it exists, and the quantities are the same.

i. Select a sample of inventory items in the factory warehouse and trace each item to the inventory count sheets to determine if it has been included and if the quantity and description are correct.

j. Question operating personnel about the possibility of obsolete or slow-moving inventory.

Answer 1

The audit procedures and related objectives are as follows: a) inquiring about procedures for verifying prices and quantities for the accounts payable clerk, to ensure existence and occurrence; b) vouching entries in the sales journal to verify existence and occurrence; c) inspecting footnotes for reasonableness of revenue transaction disclosures, to achieve completeness; d) examining expense voucher packages for expense account approval and classification; e) inspecting the sales journal and tracing amounts to the general ledger, to verify existence and accuracy; f) comparing inventory count sheets for large differences in quantities and unit prices, to test completeness; g) testing the extension of unit prices and quantities in the inventory list, verifying completeness and accuracy; h) physically examining selected quantities from the inventory list to ensure their existence and accuracy; i) physically tracing selected inventory items in the factory warehouse to the inventory count sheets, to verify existence and accuracy; j) questioning operating personnel about obsolete or slow-moving inventory, to evaluate completeness.

Step-by-step explanation:

a. Type of audit evidence: Inquiry / Confirmation / Observation
B. Related audit objective: Existence and Occurrence

b. Type of audit evidence: Vouching
B. Related audit objective: Existence and Occurrence

c. Type of audit evidence: Inspection
B. Related audit objective: Completeness

d. Type of audit evidence: Inspection
B. Related audit objective: Completeness and Rights and Obligations

e. Type of audit evidence: Inspection
B. Related audit objective: Existence and Accuracy

f. Type of audit evidence: Inspection
B. Related audit objective: Completeness and Accuracy

g. Type of audit evidence: Reperformance and Inspection
B. Related audit objective: Completeness and Accuracy

h. Type of audit evidence: Physical Examination
B. Related audit objective: Existence and Accuracy

i. Type of audit evidence: Physical Examination
B. Related audit objective: Existence and Accuracy

j. Type of audit evidence: Inquiry
B. Related audit objective: Completeness

Answer 2

In an audit, different procedures are used to obtain evidence. Each procedure has a specific type of audit evidence and related audit objective. For example, asking the accounts payable clerk about procedures for verifying prices, quantities, and extensions on vendors' invoices is an inquiry type of evidence and helps to determine whether proper procedures are being followed.

Step-by-step explanation:

1. a. The type of audit evidence is Inquiry, and the related audit objective is to determine whether proper procedures are being followed for verifying prices, quantities, and extensions on vendors' invoices.
2. b. The type of audit evidence is Inspection, and the related audit objective is to validate the accuracy of entries in the sales journal by comparing them to sales invoices and related shipping documents.
3. c. The type of audit evidence is Inspection, and the related audit objective is to assess the reasonableness of the company's policies for recording revenue transactions by examining the footnotes.
4. d. The type of audit evidence is Inspection, and the related audit objective is to verify the approval of expense account classification by examining expense voucher packages and related vendors' invoices.
5. e. The type of audit evidence is Inspection, and the related audit objective is to test the mathematical accuracy of the sales journal by adding the amounts and tracing them to the general ledger.
6. f. The type of audit evidence is Inspection, and the related audit objective is to identify any significant differences in quantities and unit prices on this year's inventory count sheets compared to the previous year's.
7. g. The type of audit evidence is Recalculation, and the related audit objective is to test the extension of unit prices times quantity on the inventory list and compare it to the general ledger.
8. h. The type of audit evidence is Observation, and the related audit objective is to physically verify selected quantities from the inventory list and ensure they match the physical inventory.
9. i. The type of audit evidence is Inspection, and the related audit objective is to verify the inclusion, quantity, and description of selected inventory items in the factory warehouse by tracing them to the inventory count sheets.
10. j. The type of audit evidence is Inquiry, and the related audit objective is to gather information from operating personnel about the possibility of obsolete or slow-moving inventory.