Deck 10: 2 Southeast Shoe Distributor, Inc

Question 1

Complete audit step 1 and 2 from the audit program R 1-2 to obtain an understanding of the documents and records used by SSD for sales and cash transactions. Document completion of your work in audit schedule R 1-2.

Answer 1

There were the following document used for the sales and cash receipts transactions by reviewing the flowchart:
1. Sales register.
2. Sales invoice.3. Bill of lading.4. Pre - numbered adjustment memo.
5. Cash receipt journal.6. Deposit slips.
7. General ledger.
8. Cash disbursement journal.

Question 2

Identify potential substantive tests by completing steps 3a, 3b, and 3c from the audit program R 1-2. Document your work in audit schedules R 1-2, R 41-1, R 41-2 , and R 41-3. Each of these steps can be completely separately at the discretion of your instructor (Note: number your tests similar to the example provided).

Answer 2

The substantive tests of transactions are as follows:
a. Physical inspection is the process of collecting physical corroboration. It falls under the completeness assertion.
b. Confirmation is a technique which involves written answers by the auditor from a substantial 3 rd party about a specific item affecting the financial statement. It also falls under the completeness assertion.
c. Vouching is that inspection of documents which supported an amount or a recorded transaction. It falls under the occurrence assertion.
d. Tracing is the technique of following of source documents to their recording in the accounting records. It is frequently used as the test of the complete assertion.
e. Re-performance is that technique which is used to obtain evidence from the client's repeating activities. It falls under the assertion of accuracy.
The test of balances is as follows:
Reconciliation is the technique of matching two independent sets of records. It falls under the assertion of completeness and occurrence.The analytical tests are as follows:
Analytical procedure includes the specific procedure that auditors employ to evaluate the rationality of the data and to recognize the unusual relationships. It addresses all the five assertions.

Question 3

What are some of the factors that influence the level of assurance obtained through substantive audit tests

Answer 3

The following are the factors that influence the level of assurance:
1. It depends upon the factor that whether the data was acquired from sources within the entity or from some independent sources outside the entity.
2. It also depend that the sources from which data has been obtained within the entity are independent or not.
3. Whether the data was gathered under the trustworthy mechanism or not.
4. Whether the data was subject to audit testing in the prior or current year.

Question 4

For a given account, why might an auditor choose to:
[a] not conduct substantive tests
[b] conduct only substantive tests