Chapter 20 Instructor's Guide

Chapter 20 Instructor's Guide - Chapter 20 Completing the...

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Chapter 20 Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts We try to cover the audit of two or three accounts in this cycle, if we cover the chapter at all. Our emphasis is on showing the relationship between tests of controls, substantive tests of transactions, and tests of details, and differences between various types of account balances. The following are the primary topical areas we cover: Chapter opening vignette Types of tests applied to acquisitions and cash disbursements Audit of income and expense accounts Audit of property, plant, and equipment Related areas Chapter Opening Vignette “Incorrect Classifications Hide a Greater Net Loss” This vignette can be used to emphasize the importance of adequate internal controls and the importance of the auditor adequately understanding and testing of internal control. It is also useful to emphasize one of the reasons that auditors perform tests of account classifications and how these tests should be done. Finally, covering the vignette provides a good opportunity to remind students of the importance of obtaining independent evidence instead of relying solely on inquiry. Types of Tests Applied to Acquisitions and Cash Disbursements Start by referring students to the list of accounts in Table 20-1 (page 668) and identify the accounts you plan to discuss. As a review, then ask students to identify the relationship between analytical procedures, tests of controls, substantive tests of transactions, and tests of details of balances for accounts payable. At this point, you should expect fairly specific answers. You may want to use Figure 20-1 (page 669) to summarize this discussion. (See Table 20-1) (See Figure 20-1) Audit of Income and Expense Accounts (page 681) We start with this area because it is reasonably easy, yet important. Three terms and phrases are defined before proceeding (see top of next page). 20-1
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Income statement account balances resulting from transactions (including a discussion of how balances get into the general ledger) Income statement account balances resulting from allocations (including a discussion of how balances get into the general ledger) Analysis of account balances Figure 20-3 (page 677) and Figure 20-4 (page 680) may provide a useful basis
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Chapter 20 Instructor's Guide - Chapter 20 Completing the...

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