13-26
a.
b.
c.
d.
1.
Acquisition and
Payment
Recalculation
Substantive
S T of T
2.
Acquisition and
Payment
Documentation
Test of control or
Substantive
3.
Acquisition and
Payment
Documentation
4.
Sales and Collection
5.
e.
f.
N/A
S T of T
Posting and
summarization
Occurrence
Substantive
T D of B
N/A
Cutoff
Inquiry
Substantive
T D of B
N/A
Realizable value
Inventory and
Warehousing
Analytical procedure
Substantive
AP
N/A
Realizable value
6.
Capital Acquisition
and Repayment
Confirmation
Substantive
T D of B
N/A
Existence
Accuracy
7.
Acquisition and
Payment
Recalculation
Substantive
T D of B
N/A
Detail tie-in
N/A
13-32 a.
The sequence the auditor should follow is:
3.
1.
4.
2.
Assess control risk.
Determine whether it is cost effective to perform tests of controls.
Perform tests of controls.
Perform substantive tests of details of balances.
The only logical sequences for parts b through e are shown as follows:
E
F
A
B
G
H
C
D
D
D
Any other sequence is not cost effective or incorrect. For example: E, A, G,
C would be the sequence when there is planned reduced assessed control
risk and effective results of tests of controls.
b.
c.
d.
e.
The sequence is E, A, H, D. The logic was reasonable. The auditor
believed the internal controls would be effective and it would be cost
effective to perform tests of controls. In performing the tests of controls the
auditor concluded the controls were not effective. Therefore, expanded
substantive tests of details of balances were needed.
The sequence is E, B, G, C. The auditor concluded the internal controls may
be effective, but it was not cost effective to reduce assessed control
risk. The auditor should not have performed tests of controls. It would have
been more cost effective to skip performing tests and instead follow the
sequence E, B, D.
The sequence is F, A, G, C. The logic is not reasonable. When the auditor
concluded the controls were not effective he or she should have gone
immediately to D and performed expanded substantive tests of details of
balances.
The sequence is F, D. The logic was reasonable. The auditor concluded
that internal controls were not effective, therefore the auditor went directly to
substantive tests of details of balances and performed expanded tests.
13-33
PROCEDURES TO
OBTAIN AN
UNDERSTANDING
OF INTERNAL
CONTROL
AUDIT
TESTS OF
CONTROLS
SUBSTANTIVE
TESTS OF
TRANSACTIONS
ANALYTICAL
PROCEDURES
TESTS OF
DETAILS
OF
BALANCES
1
E
E
S
E
S
2
M
N
S
M
E
3
E
E
M
E
S, E*
E
M
S
N
=
=
=
=
Extensive amount of testing.
Medium amount of testing.
Small amount of testing.
No testing.
S,E* =
Small amount of testing for the gross balance in accounts
receivable; extensive testing done for the collectibility of the accounts.
a.
b.
c.
For audit 1 the recommended strategy is to maximize the testing of
internal controls and minimize the testing of the details of all ending
balances in inventory. The most important objective would be to minimize
the number of locations that need to be visited. The justification for doing
this is the quality of the internal controls and the results of prior years'
audits. Assuming that some of the locations have a larger portion of the
ending inventory balance than other locations, the auditor can likely
completely eliminate tests of physical counts of some locations and
emphasize the locations with larger dollar balances. The entire strategy is
oriented to minimizing the need to visit locations.
Audit risk for this audit should be low because of the plans to sell the
business, severe under-financing and a first year audit. The lack of
controls over accounts payable and the large number of adjusting entries
in accounts payable indicate the auditor cannot consider the internal
controls effective. Therefore the plan should be to do extensive tests of
details of balances, probably through accounts payable confirmation and
other end of year procedures. No tests of controls are recommended
because of the impracticality of reduced assessed control risk. Some
substantive tests of transactions and analytical procedures are
recommended to verify the correctness of acquisitions and to obtain
information about the reasonableness of the balances.
The most serious concern in this audit is the evaluation of the allowance
for uncollectible accounts. Given the adverse economic conditions and
significant increase of loans receivable, the auditor must be greatly
concerned about the adequacy of the allowance for uncollectible accounts
and the possibility of uncollectible accounts being included in loans
receivable. Given the internal controls, the auditor is not likely to be
greatly concerned about the gross accounts receivable balance, except
for accounts that need to be written off. Therefore, for the audit of gross
accounts receivable there will be a greatly reduced assessed control risk
and relatively minor confirmation of accounts receivable. In evaluating the
allowance for uncollectible accounts, the auditor should test the controls
over granting loans and following up on collections. However, given the
changes in the economy, it will be necessary to do significant additional
testing of the allowance for uncollectible accounts. Therefore an "S" is
included for tests of details of balances for gross accounts receivable and
an "E" for the tests of net realizable value.
11-33 – ACL Problem
a.
b.
c.
The invoice amount column totals $278,641.33.
There are no exceptions in the calculation of unit cost x quantity. (Create a
filter with the expression Unit_Cost * Quantity <> Invoice_Amount.)
There are three items where the unit cost exceeds $100 (product #
090584072, 090585322, and 090081001). See the following printout.
(Filter used Unit Cost >100.)
Page ...
1
04/10/2007 14:10:33
Produced with ACL by: ACL Educational Edition - Not For Commercial Use
INV._DATE INV._NO PRODNO QUANTITY VENDOR_NO INVOICE_AMT UNIT_COST
10/21/2002 87 090584072 41 11475 7125.80
10/21/2002 22 090585322 29 11837 3996.20
04/09/2002
090081001 3 10134
467.40
73
11589.40
d.
e.
f.
173.80
137.80
155.80
467.40
The three vendors with the largest total dollars for 2002 were: vendor #s
10025, 11475, and 12130. (Summarize by vendor number, then Quick
Sort to find the largest three.)
The following amounts are over $15,000: vendor #10025 for $56,767.20,
vendor #11475 for $20,386.19, and vendor #12130 for $15,444.80. [Filter
used is (VENDOR_NO = “10025” OR VENDOR_NO = “11475” OR
VENDOR_NO = “12130”) AND INVOICE_AMOUNT > 15000.]
See the following printout. (Filter, then print report). Total transactions for
vendor #10134 = $22.618.62. (Edit filter to include only vendor #10134
and use Total command)
Page ...
1
04/10/2007 15:45:19
Produced with ACL by: ACL Educational Edition - Not For Commercial Use
INV._DATE INV._NO PRODNO QTY VENDOR_NO INVOICE_AMOUNT UNIT_COST
09/29/2002 030303343 100
11/12/2002 0302303
458
04/09/2002 090081001
3
09/30/2002 010551340 278
02/14/2002 052484405 115
10/15/200255 060102096286
1240
10134
883.00
10134 18883.34
10134
467.40
10134 1823.68
10134
561.20
13440 11068.20
8.83
41.23
155.80
6.56
4.88
38.70
33686.82
256.00
12-30 – ACL Problem
a.
There are three transactions with missing dates. There are several
negative balance transactions with no indication that they are purchase
returns.
b.
Total purchases are $300,682.04 (use the Total command on the Amount
column).
c.
There are twelve gaps and many duplicates (Gaps and Duplicates
commands). For gaps, the auditor is concerned that there may be
unrecorded purchases. For duplicates, the auditor is concerned that
purchases may be recorded more than once. In this case, no duplicate
has the same amount as the transaction with the same document number.
d.
Using the Summarize command to summarize total purchases by product,
the total is the same as in requirement b: $300,682.04. See printout on
pages 12-26 and 12-27.
e.
Product #024133112 represents 6.15% of total purchases. See report on
pages 12-28 and 12-29. See highlighted amount for product #024133112.
f.
Starting with the classified table from requirement e, students should filter
out items less than $1000. Next, run the Stratify command using a
minimum value of $1210 (smallest amount in table) and a maximum value
of $20,439 (2nd largest amount in table). See report on page 12-29.
Printout for requirement d:
Page ...
1
04/05/2007 17:35:00
Produced with ACL by: ACL Educational Edition - Not For Commercial Use
PRODNO
AMOUNT
COUNT
010102710
010102840
010134420
010155150
010155170
010207220
010226620
010310890
010311990
010551340
010631190
010803760
023946372
023973042
024104312
024121332
024128712
024128812
024128932
024130572
024133112
024139372
030030323
030303343
030305603
030321663
030321683
030324883
030364163
030412553
030412903
030934423
034255003
040224984
040225014
040226054
040240284
040240664
040240884
040241754
040247034
040270354
040276054
65.89
11859.40
7107.44
3183.60
5858.55
3223.22
5594.40
735.28
2157.52
974.96
1483.70
-2481.33
270.06
5323.64
435.60
39.20
3609.69
1271.00
177.99
31.80
18497.00
148.50
1210.00
35.32
310.69
291.27
946.68
874.20
644.80
1625.73
12.40
4407.30
6627.20
44.00
208.80
43.50
10293.40
3552.00
3967.50
6029.24
7650.80
1242.56
4124.50
2
3
11
2
2
2
2
2
1
1
5
6
2
6
2
1
26
2
2
1
9
1
3
1
3
4
3
1
1
6
2
2
8
2
2
1
4
1
1
4
3
5
2
12-30 (continued) Requirement d, cont.
052204515
052208805
052210545
052484425
052484435
052504005
052530155
052720305
052720615
052770015
060100306
060100356
060102066
060102106
060112296
060217066
070104177
070104347
070104397
070104657
080101018
080102618
080102628
080123438
080123938
080126008
080126308
080935428
080938748
090010011
090069591
090081001
090501051
090501551
090504761
090506331
090507811
090508191
090509561
090585322
090599912
090669611
093788411
1997.94
10618.25
0.00
726.24
864.00
200.94
122.88
164.00
15826.00
90.52
190.40
318.00
39.80
5014.80
10964.80
2359.80
-6155.52
144.27
4046.43
185.49
8.14
3595.20
413.00
700.29
2798.64
7919.26
381.12
20438.93
5.98
330.67
3647.52
6282.00
1688.80
2774.28
376.37
-27.20
7425.52
101.06
664.02
58702.80
2803.40
7317.00
907.20
1
3
1
1
5
3
32
1
2
2
2
2
1
2
2
3
4
1
1
2
1
4
2
1
1
31
10
5
1
2
4
2
3
11
4
1
7
2
4
3
7
4
8
300682.04
339
12-30 (continued)
Printout for requirement e:
Page ...
1
04/05/2007 18:08:49
Produced with ACL by: ACL Educational Edition - Not For Commercial Use
PRODNO
COUNT Percent Percent
AMOUNT
of Count of Field
010102710
010102840
010134420
010155150
010155170
010207220
010226620
010310890
010311990
010551340
010631190
010803760
023946372
023973042
024104312
024121332
024128712
024128812
024128932
024130572
024133112
024139372
030030323
030303343
030305603
030321663
030321683
030324883
030364163
030412553
030412903
030934423
034255003
040224984
040225014
040226054
040240284
040240664
040240884
040241754
040247034
040270354
040276054
052204515
052208805
052210545
052484425
052484435
052504005
052530155
052720305
052720615
052770015
060100306
060100356
060102066
060102106
060112296
2
3
11
2
2
2
2
2
1
1
5
6
2
6
2
1
26
2
2
1
9
1
3
1
3
4
3
1
1
6
2
2
8
2
2
1
4
1
1
4
3
5
2
1
3
1
1
5
3
32
1
2
2
2
2
1
2
2
0.59
0.88
3.24
0.59
0.59
0.59
0.59
0.59
0.29
0.29
1.47
1.77
0.59
1.77
0.59
0.29
7.67
0.59
0.59
0.29
2.65
0.29
0.88
0.29
0.88
1.18
0.88
0.29
0.29
1.77
0.59
0.59
2.36
0.59
0.59
0.29
1.18
0.29
0.29
1.18
0.88
1.47
0.59
0.29
0.88
0.29
0.29
1.47
0.88
9.44
0.29
0.59
0.59
0.59
0.59
0.29
0.59
0.59
0.02
3.94
2.36
1.06
1.95
1.07
1.86
0.24
0.72
0.32
0.49
-0.83
0.09
1.77
0.14
0.01
1.20
0.42
0.06
0.01
6.15
0.05
0.40
0.01
0.10
0.10
0.31
0.29
0.21
0.54
0.00
1.47
2.20
0.01
0.07
0.01
3.42
1.18
1.32
2.01
2.54
0.41
1.37
0.66
3.53
0.00
0.24
0.29
0.07
0.04
0.05
5.26
0.03
0.06
0.11
0.01
1.67
3.65
65.89
11859.40
7107.44
3183.60
5858.55
3223.22
5594.40
735.28
2157.52
974.96
1483.70
-2481.33
270.06
5323.64
435.60
39.20
3609.69
1271.00
177.99
31.80
18497.00
148.50
1210.00
35.32
310.69
291.27
946.68
874.20
644.80
1625.73
12.40
4407.30
6627.20
44.00
208.80
43.50
10293.40
3552.00
3967.50
6029.24
7650.80
1242.56
4124.50
1997.94
10618.25
0.00
726.24
864.00
200.94
122.88
164.00
15826.00
90.52
190.40
318.00
39.80
5014.80
10964.80
12-30 (continued) requirement e, cont.
060217066
070104177
070104347
070104397
070104657
080101018
080102618
080102628
080123438
080123938
080126008
080126308
080935428
080938748
090010011
090069591
090081001
090501051
090501551
090504761
090506331
090507811
090508191
090509561
090585322
090599912
090669611
093788411
3
4
1
1
2
1
4
2
1
1
31
10
5
1
2
4
2
3
11
4
1
7
2
4
3
7
4
8
339
0.88
1.18
0.29
0.29
0.59
0.29
1.18
0.59
0.29
0.29
9.14
2.95
1.47
0.29
0.59
1.18
0.59
0.88
3.24
1.18
0.29
2.06
0.59
1.18
0.88
2.06
1.18
2.36
99.79
0.78
-2.05
0.05
1.35
0.06
0.00
1.20
0.14
0.23
0.93
2.63
0.13
6.80
0.00
0.11
1.21
2.09
0.56
0.92
0.13
-0.01
2.47
0.03
0.22
19.52
0.93
2.43
0.30
99.90
2359.80
-6155.52
144.27
4046.43
185.49
8.14
3595.20
413.00
700.29
2798.64
7919.26
381.12
20438.93
5.98
330.67
3647.52
6282.00
1688.80
2774.28
376.37
-27.20
7425.52
101.06
664.02
58702.80
2803.40
7317.00
907.20
300682.04
Printout for requirement f:
Page ...
1
04/05/2007 18:26:44
Produced with ACL by: ACL Educational Edition - Not For Commercial Use
<<< STRATIFY over 1,210.00-> 20,439.00 >>>
>>> Minimum encountered was 1,210.00
>>> Maximum encountered was 58,702.80
AMOUNT
1,210.00 ->
3,132.90 ->
5,055.80 ->
6,978.70 ->
8,901.60 ->
10,824.50 ->
12,747.40 ->
14,670.30 ->
16,593.20 ->
18,516.10 ->
> 20,439.00
3,132.89
5,055.79
6,978.69
8,901.59
10,824.49
12,747.39
14,670.29
16,593.19
18,516.09
20,439.00
COUNT
12
11
6
5
2
2
0
1
1
1
1
<-- %
28.57%
26.19%
14.29%
11.90%
4.76%
4.76%
0.00%
2.38%
2.38%
2.38%
2.38%
% -->
7.91%
14.31%
12.06%
12.64%
7.06%
7.71%
0.00%
5.34%
6.25%
6.90%
19.82%
AMOUNT
23413.37
42371.76
35715.03
37420.02
20911.65
22824.20
0.00
15826.00
18497.00
20438.93
58702.80
42 100.00% 100.00%
296120.76