14-27 To support financial statement assertions, an auditor develops specific substantive procedures to satisfy or address each assertion. Required: Items (a) through (c) represent assertions for the property and equipment accounts. Select the most appropriate audit procedure from the following list and enter the number in the appropriate place on the grid. (An audit procedure may be selected once or not at all.) Audit Procedure: 1. Trace opening balances in the summary schedules to the prior-year’s audit working papers. 2. Review the provision for depreciation expense and determine that depreciable lives and methods used in the current year are consistent with those used in the prior year. 3. Determine that the responsibility for maintaining the property and equipment records is segregated from the responsibility for custody of property and equipment. 4. Examine deeds and title insurance certificates. 5. Perform cutoff tests to verify that property and equipment additions are recorded in the proper period. 6. Determine that property and equipment are adequately insured. 7. Physically examine all major property and equipment additions. Specific Assertion | Audit Procedure a. Verify that the entity has the legal right to property and equipment acquired during the year (rights and obligations). b. Verify that recorded property and equipment represent assets that actually exist at the balance sheet date (existence). c. Verify that net property and equipment are properly valued at the balance sheet date (valuation and allocation).
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For assertion (b), which is verifying that recorded property and equipment actually exist at the balance sheet date, the most appropriate audit procedure would be to physically examine all major property and equipment additions (Audit Procedure 7). For assertion Show more…
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Auditors gather several different types of evidence during the audit, including physical evidence, third-party representation, documentary evidence, computations, and client representation. Listed below are FIVE (5) audit procedures that are typically performed in an audit: i. Observe the client's inventory-taking procedures. ii. Computer printout from the client's accounts receivable subsidiary ledger. iii. Obtain a report on the valuation of inventory by a specialist. iv. Examine an invoice in support of a sales transaction. v. Inspect the client's bank statements. Required: a) Verify whether each of the above (i) to (v) documentary evidence is used, is received directly by auditors, created externally and held by the client, or created internally by the client. b) Exhibit the difference between the relative reliability of the above THREE (3) forms of documentary evidence.
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The following audit procedures are included in the audit program because of heightened risks of material misstatements due to fraud. 1. Use audit software to search purchase transactions to identify any with nonstandard vendor numbers or with vendor names reflecting related parties. 2. Search sales databases for missing bill of lading numbers. 3. Use audit software to search for journal entries posted to the sales revenue account from a nonstandard source (other than the daily sales journal). 4. Use audit software to search cash disbursement master files for missing check numbers. 5. Search the accounts receivable master file for account balances with missing or unusual customer numbers (e.g., "99999"). 6. Use audit software to create a list of all credits to the repair and maintenance expense account for follow-up testing. 7. Engage an actuarial specialist to examine management's assumptions about average length of employment and average life expectancy of retirees used in pension accounting decisions. 8. Send confirmations to customers for large sales transactions made in the fourth quarter of the year to obtain customer responses about terms related to the transfer of title and ability to return merchandise. Required: For each audit procedure: 1. Describe the type of fraud risk that is likely associated with the need for this audit procedure. 2. Identify the related accounts likely affected by the potential fraud misstatement. 3. Identify the related audit objective(s) that this procedure addresses.
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Performance of an analytical procedure requires the use of information produced by the entity being audited (IPE). Required: a. Whenever an auditor uses IPE in an audit procedure, the auditor must ensure that the information is reliable. According to auditing standards, when using IPE as audit evidence, what procedures should the auditor evaluate to determine whether the information is sufficient and appropriate for purposes of the audit? (You may select more than one answer. Single click the box with the question mark to produce a checkmark for correct answers and double click the box with the question mark to empty the box for wrong answers.) Check all that apply: - Determine the financial statement items or accounts and assertions affected. - Determine the nature, timing, and extent of the population to be tested. - Determine the overall purpose and specific objectives of the Audit Data Analytic. - Obtain audit evidence about the completeness and accuracy of the information. - Evaluate whether the evidence is sufficiently precise and detailed for the auditor's purposes. - Evaluate whether the preferred tools will work efficiently with the data.
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Recommended Textbooks
Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
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