Problem 1:
Discuss the following characteristics of relevant evidence.
-Independence of provider;
- Effectiveness of client's internal controls.
- Auditor's direct knowledge.
Problem 2:
Below are 12 audit procedures. Classify each procedure according to the following types of audit evidence: (1) physical examination, (2) confirmation, (3) documentation, (4) observation, (5) inquiry of the client, (6) reperformance, and (7) analytical procedure.
Type of Evidence:
Audit Procedures:
1. Watch client employees count inventory to determine whether company procedures are being followed.
2. Count inventory items and record the amount in the audit files.
3. Trace postings from the sales journal to the general ledger accounts.
4. Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of gross margin relative to the preceding year.
5. Obtain information about the client's internal controls by asking questions of client personnel.
6. Trace column totals from the cash disbursements journal to the general ledger.
7. Examine a piece of equipment to make sure a recent purchase of equipment was actually received and is in operation.
8. Review the total of repairs and maintenance for each month to determine whether any month's total was unusually large.
9. Compare vendor names and amounts on purchase invoices with entries in the purchases journal.
10. Foot entries in the sales journal to determine whether they were correctly totaled by the client.
11. Make a surprise count of petty cash to verify that the amount of the petty cash fund is intact.
12. Obtain a written statement from the client's bank stating the client's year-end balance on deposit.
Problem 3: State the three phases of the audit where analytical procedures can be performed and describe the specific procedures performed in each phase.
Problem 4: Discuss the three factors that affect engagement risk and, therefore, acceptable audit risk.
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