Chap004

Auditing and Assurance Services

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Chapter 04 - Audit Evidence and Audit Documentation returned by individual titles from the retail stores. If these tests indicated that the client's records were accurate, the auditor could rely on the client's records for establishing the allowance for return of unsold books. b. The return rate could be estimated for relatively new titles in a number of ways. One possibility is to use the average historical "first-year" return rate for all new titles. Another possibility is to estimate the first-year return rate by individual author. Thus, if a new title was from an author who had previously published with Bentley Bros., the author's average first-year rate could be tested and used. c. Other than average industry data, there is not likely to be much external evidence that can be gathered on returned books. It might be possible to send a confirmation to the major retail stores and ask for information on current sales activity. Some evidence might also be gathered from the "best-selling" book lists. Solution to Internet Assignment 4-33 A general search for each term using an Internet browser resulted in a long list of "hits;" most of which did not apply to the material covered in the text. One site ( ) provided a glossary of auditing terms that contained EDI and image processing systems. The Institute of Internal Auditors' home page ( ) contained some information related to EDI and image processing systems. Using the search function at the AICPA's home page ( ) identified a significant number of references to the three terms. EDI refers to the electronic exchange of data, for example, the electronic exchange of data regarding inventory requirements between a customer and a vendor. Image processing systems capture and store electronic images, usually reproductions of documents. For example, many banks and credit unions now make electronic images of cancelled checks available to their customers online. These technologies have fundamental implications for auditing, especially in terms of the quality of the electronic evidence involved in both. If important audit evidence is stored only in electronic form and controls over the integrity of the electronic records are not adequate, the auditor may not be able to gather sufficient appropriate evidence to express an unqualified opinion on the client’s financial statements. 4-10
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