13 8 when the results of analytical procedures are

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13-8 When the results of analytical procedures are different from the auditor's expectations and thereby indicate that there may be a misstatement in the balance in accounts receivable or sales, the auditor should extend the tests to determine why the ratios are different from expectations. Confirmation of accounts receivable and cutoff tests for sales are two procedures that can be used to do this. On the other hand, if the ratios are approximately what the auditor expects, the other tests can be reduced. This means that the auditor can satisfy the evidence requirements in different ways and that analytical procedures and confirmation are complementary when the results of the tests are both good. 13-9 Substantive tests of transactions are performed to verify the accuracy of a client's accounting system. This is accomplished by determining whether individual transactions are correctly recorded and summarized in the journals, master files, and general ledger. Substantive tests of transactions are also concerned with classes of transactions, such as payroll, acquisitions, or cash receipts. Tracing amounts from a file of vouchers to the acquisitions journal is an example of a substantive test of transactions for the acquisition and payment cycle. Tests of details of balances verify the ending balance in an individual account (such as inventory, accounts receivable, or depreciation expense) on the financial statements. An example of a test of details of balances for the acquisition and payment cycle is to physically examine a sample of the client's fixed assets. 13-10 1. Control #1 -- Computer verification of the customer’s credit limit . The presence of effective general controls over software programs and master file changes can significantly reduce the auditor’s testing of automated controls such as control #1. Once it is determined that control #1 is functioning properly, the auditor can focus subsequent tests on assessing whether any changes have occurred that would limit the effectiveness of the control. Such tests might include determining whether any changes have occurred to the program and whether these changes were properly authorized and tested prior to implementation. These are all tests of general controls over software programs and master file changes. 2. Control #2 The accounts receivable clerk matches bills of lading, sales invoices, and customer orders before recording in the sales journal. This control is not an automated control, but is rather a manual control performed by an employee. General controls over 13-3
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13-10 (continued) software programs and master file changes would have little effect on the auditor’s testing of control #2. If the auditor identifies control #2 as a key control in the sales and collection cycle, he or she would most likely examine a sample of the underlying documents for the accounts receivable clerk’s initials and reperform the comparisons.
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  • Spring '08
  • Brady,J
  • Controls, substantive tests

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