Question 2 ISA 500 Audit Evidence requires that the auditors should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base their audit opinion. Required a) Explain the meaning of sufficiency and appropriateness of audit evidence. (2 marks) b) In a situation that uses inspection of records and documents as a type of evidence, distinguish between vouching and tracing and state the assertion addressed by each. (2 marks) Christmas City Ltd's bank reconciliation clerk is unable to reconcile the bank balance at 31 January. The balance of the Cash at Bank account before any entries for transactions initiated by the bank was $4770.20 in the company records. The clerk's attempt at the bank reconciliation statement is as follows: Cash balance as per bank statement 4,392.20 Add: Dishonoured cheque 516.00 Less: Bank charges 30.00 Less: Outstanding deposits 708.00 Add: Unpresented cheques 876.00 Cash balance as per company records 5,046.20 Required: c) Prepare a corrected bank reconciliation. (4 marks) d) Describe ONE possible substantive audit procedure the auditor could carry out in respect of each of the following item on the reconciliation: i. Cash balance per bank statement; ii. Outstanding deposits; iii. Dishonoured cheque; and iv. Unpresented cheques. (4 marks)
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- Sufficiency: the measure of the quantity of audit evidence; relates to whether enough evidence has been obtained (sample size/number of items) to reduce audit risk to an acceptably low level. More evidence is required when assessed risk is higher or evidence Show more…
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During fieldwork, auditors "design and perform audit procedures to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions" that form the basis of the opinion (AICPA 2015a). Similarly, Kabbage gathers evidence to assess the financial position and creditworthiness of its applicants. Please respond to the following: a. Create a list of the possible data sources that Kabbage could use in its credit analysis and then assess the reliability of each source using the criteria established by AU-C 500 Audit Evidence (AICPA 2015a). b. Identify and explain which financial statement accounts and related financial statement assertions as identified by AU-C 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (AICPA 2015d) would be most applicable to Kabbage's lending decisions. c. Please specifically describe how Kabbage might evaluate the existence and completeness of an applicant's revenue transactions. d. Explain which financial statement accounts and related assertions would be most difficult for Kabbage to evaluate since it only assesses transactional data.
Akash M.
The Cash account in the general ledger of Lyco Corporation showed a balance of $21,749 at December 31 (but prior to performing a bank reconciliation). The company's bank statement showed a balance of $22,000 at the same date. The only reconciling items consisted of: (1) a $5,000 deposit in transit, (2) a bank service charge of $200, (3) outstanding checks totaling $9,000, (4) a $3,000 check marked "NSF" from Susque Company, one of Lyco's customers, and (5) a check written for office supplies in the amount of $1,832, recorded by the company's bookkeeper as a debit to Office Supplies of $1,283, and a credit to Cash of $1,283. In addition to the above information, Lyco owned the following financial assets at December 31: (1) a money market account of $60,000, (2) $3,000 of high-grade, 120-day commercial paper, and (3) $5,000 of highly liquid stock investments. a. Prepare the company's December 31 bank reconciliation. b. Determine the amount at which cash and cash equivalents will be reported in the company's balance sheet dated December 31. c. Prepare the necessary journal entry to update the accounting records.
The following information is available to reconcile Severino Co.'s book balance of cash with its bank statement cash balance as of December 31, 2013. a. The December 31 cash balance according to the accounting records is $32,878.30, and the bank statement cash balance for that date is $46,822.40. b. Check No. 1273 for $4,589.30 and Check No. 1282 for $400, both written and entered in the accounting records in December, are not among the canceled checks. Two checks, No. 1231 for $2,289 and No. 1242 for $410.40, were outstanding on the most recent November 30 reconciliation. Check No. 1231 is listed with the December canceled checks, but Check No. 1242 is not. c. When the December checks are compared with entries in the accounting records, it is found that Check No. 1267 had been correctly drawn for $3,456 to pay for office supplies but was erroneously entered in the accounting records as $3,465. d. Two debit memoranda are enclosed with the statement and are unrecorded at the time of the reconciliation. One debit memorandum is for $762.50 and dealt with an NSF check for $745 received from a customer, Titus Industries, in payment of its account. The bank assessed a $17.50 fee for processing it. The second debit memorandum is a $99 charge for check printing. Severino did not record these transactions before receiving the statement. e. A credit memorandum indicates that the bank collected $19,000 cash on a note receivable for the company, deducted a $20 collection fee, and credited the balance to the company's Cash account. Severino did not record this transaction before receiving the statement. f. Severino's December 31 daily cash receipts of $9,583.10 were placed in the bank's night depository on that date but do not appear on the December 31 bank statement. Required: 1. Prepare the bank reconciliation for this company as of December 31, 2013. 2. Prepare the journal entries (in dollars and cents) necessary to bring the company's book balance of cash into conformity with the reconciled cash balance as of December 31, 2013. Analysis Component: 3. Explain the nature of the communications conveyed by a bank when the bank sends the depositor (a) a debit memorandum and (b) a credit memorandum.
Jennifer S.
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