Question 1: For each of the given specific audit procedures illustrated below, point out the type of audit procedures it represents:
a) Inspection of records or documents
b) Inspection of tangible assets
c) Observation
d) Inquiry
e) Confirmation
f) Recalculation
g) Reperformance
h) Analytical procedures
i) Scanning
Audit procedures:
A) Sending a written request to the client’s customers requesting that they report the amount owed to the client.
B) Examining big sales invoices for a period of two days before and after the year-end to find out if sales are recorded in the appropriate period.
C) Describing the sufficiency of the allowance for doubtful accounts with the credit manager.
D) Comparing the present year gross profit percentage with the gross profit percentage of the last four years.
E) Examining a new machine to make sure that this main acquisition was received.
F) Watching the client’s warehouse personnel count the raw materials inventory.
G) Reviewing the general ledger for unusual adjusting entries.
Question 2: Evidence comes in different types and has various degrees of reliability. Following are some statements which compare different types of evidence.
a) A bank confirmation versus observation of the segregation of duties between cash receipts and recording payment in the accounts receivable subsidiary ledger.
b) An auditor’s re-calculation of depreciation versus the examination of raw material requisitions.
c) A bank statement comprised in the client’s records versus the shipping documents.
d) Physical inspection of share certificates held for investment versus physical examination of inventory components for a personal computer.
Required:
For each condition, point out whether the first or second kind of evidence is more reliable. Give a rationale for your preference.