Chap004

Auditing and Assurance Services

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Answers to Multiple-Choice Questions 4-12 b 4-17 b 4-13 c 4-18 b 4-14 b 4-19 c 4-15 d 4-20 d 4-16 a 4-21 a Solutions to Problems 4-22 a. 4 b. 3 c. 1 d. 2 4-23 a. Fictitious revenue. Revenue recorded, goods not shipped, or services not performed. b. Goods shipped or services performed, revenue not recorded. c. Goods shipped or services performed for a customer who is a bad credit risk. Shipments made or services performed at unauthorized prices or on unauthorized terms. d. Revenue transaction recorded at an incorrect dollar amount. Revenue transactions not posted correctly to the sales journal or customers’ accounts in accounts receivable subsidiary ledger. Amounts from sales journal not posted correctly to general ledger. e. Revenue transactions recorded in the wrong period. f. Revenue transaction not properly classified as revenue (i.e. improperly recorded as other income or as an offset to expenses). 4-4
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Chapter 04 - Audit Evidence and Audit Documentation 4-24 a. 5 g. 3 b. 1 h. 7 c. 1/7 i. 5 d. 4 j. 1/7 e. 8 k. 9 f. 2 4-25 Category of Assertion Assertion a. Assertions about account balances Existence b. Assertions about transactions and events Cutoff c. Assertions about account balances Completeness d. Assertions about account balances Valuation and allocation e. Assertions about account balances Valuation and allocation f. Assertions about account balances Existence g. Assertions about account balances Completeness/Existence h. Assertions about account balances Completeness/Existence i. Assertions about account balances Valuation and allocation/ Completeness j. Assertions about transactions and events Accuracy k. Assertions about account balances Valuation and allocation 4-26 a. The audit program is the auditor's plan of action and contains the planned audit procedures. It serves as an outline of the evidence-gathering procedures that the auditor will follow during the audit. An audit program serves as a record of the work performed during the audit. It represents evidence that the audit was conducted in accordance with generally accepted auditing standards. Since an audit program typically includes specific steps to gain corroborative evidence, it serves as a list of procedures necessary to test actual transactions and resulting balances. b. Examples of the types of audit procedures that would be used by the auditor during an audit of financial statements are the following (note that each procedure listed relates to one of the types of procedures listed in the chapter): Observation of activities and conditions. Physical examination and counts. Confirmation. Inspection of authoritative documents. Recalculation. Tracing or retracing (e.g., tracing bookkeeping procedures, walking through the system, checking data processing flow, agreeing evidence to accounting records, flow-charting, checking audit trail, vouching, etc.).
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