Exam 10: Substantive Testing and Balance Sheet Accounts

Celestino Minotti tested the posting of individual credit memos to the sales returns and allowances ledger and to the trade receivables sub-ledger. Which assertion was he fulfilling?

Which of the following statements is incorrect?

Ensuring that all property, plant and equipment owned by the entity at year-end are included on the balance sheet relates to which assertion?

Miriam Bakeman recently performed procedures to evaluate whether client's internal control system is preventing or detecting a material misstatement. This is an example of

Completeness of property, plant and equipment is usually not a major issue for most entities because:

When the assessment of inherent risk and control risk is low, the amount of substantive testing required to reduce the detection risk to an acceptable level is significant.

Identify and explain the key audit assertions relating to cash.

Based on her review, Joyce Yu found both inherent risk and control risk at a major research facility to be high. One would expect that her amount of substantive testing required would be:

Ensuring that accounts payable are stated at the amounts owed at year-end relates to the rights and obligations assertion.

A fixed assets register is used to capture additions and disposals of fixed assets, as well as calculating depreciation charges.

Accounts that are clearly trivial or immaterial are usually ignored or only subjected to:

Prepayments are audited by vouching the balance to the supporting invoices.

Anna Monticello tested the postings of the totals in the cash receipts journal to the general ledger, trade receivables sub-ledger and other subsidiary ledgers. Which assertion(s) was she fulfilling?

The three audit assertions particularly important to enable the auditor to conclude that there are no material misstatements in cash as at year-end are:

Existence of trade receivables is usually verified by:

Testing the mathematical accuracy of the cash disbursement journal relates to the existence assertion.

When the assessment of inherent and control risk is low:

Investments can be vouched to supporting external documentation such as:

The timing of substantive testing is dependent on the risk assessment of the significant account in question.

Indicate whether you agree or disagree with the following statements and explain your reasoning. a) Paula Padgett was performing substantive tests of trade receivables at Neu Lion. She indicated to her staff member, Leona Marshall: "At this client accounts receivable are material in amount. The two assertions that are the most important are the occurrence and accuracy assertions." b) Emilio Boulrice, CGA was returning from an audit conference where he had entertained his many friends with his musical talents. As he sat in his aisle in the Air Canada flight back home to Montreal, he turned to his friend and said: "Although there is no specific requirement for us to confirm receivables anymore, existence of trade receivables is usually verified by sending confirmations to the client's customers." c) Mike Gallagher was preparing his staff for the audit of inventory at a major client. He said to his staff: " The two key assertions for inventory are proper cutoff and accuracy." d) Mona Lincolnshire was assessing the results of her staff's substantive testing procedures. She said: "When performing substantive procedures, the key objective is to determine whether there are material misstatements within the balance being investigated and to quantify the amount of any errors if they exist."