Principles of Auditing & other assurance services- Chapter 14 Exam Bank Solution Manual (Rated A+)

Principles of Auditing & other assurance services- Chapter 14 Exam Bank Solution Manual (Rated A+) Auditor's concern with Assets - Answers Concerned with Overstatement Usually requires an improper entry or fictitious transaction Auditor's concern with Liabilities - Answers Concerned with Understatement or omission Usually created by failing to make an entry Internal Control over A/P - Answers A/R of one company = A/P of another A/P Department - Answers a. Stamp all forms with date received and use serial numbers to control vouchers. b. Separate function of invoice verification and approval from cash disbursement function. c. Reconcile vendors statements to A/P ledger monthly. Obtain understanding of Internal Control - Answers a. Flowchart, narrative, questionnaire, inquires of personnel. b. Conduct a walk-through test of few transactions. c. Observe and inquire about segregation of duties and inspect various documents. d. Consider types of misstatements. Types of Misstatements - Answers a. Inaccurate recording of a purchase or disbursement. b. Cutoff problems - early/late recording of cost of purchases. c. Misappropriation of purchases. d. Duplicate recording of purchases. A/P substantive tests - Answers 1. Obtain a trial balance of A/P as of the B/S date & reconcile with the G/L. (clerical accuracy) 2. Vouch A/P to selected creditors by inspection of supporting documents. (existence, valuation, obligation) 3. Reconcile liabilities with monthly statements. (existence, valuation, obligations, completeness) 4. Confirm payables with vendors by direct communication. (existence, valuation, obligation, completeness) 5. Perform analytical procedures. (existence, obligations, completeness, valuation) 6. Search for unrecorded A/P. (completeness) 7. Perform procedures to identify A/P to related parties. (presentation) 8. Evaluate proper B/S presentation and disclosure of A/P. (presentation) Amounts withheld from employees pay - Answers Requires records that permit a determination of compliance with the tax laws. Trace amounts withheld to payroll summary sheets, test computations of taxes, determine taxes have been paid, and review quarterly returns. Sales Tax Payable - Answers Not and expense, client is a collection agent for the gov't. Test for reasonableness. Determine that customers are charged the correct amount. Unclaimed Wages - Answers Prepare a list of unpaid wages and promptly deposit in a special bank account. Customer Deposits - Answers Review clients procedures for accepting and returning deposits. Obtain list of individual deposits and compare to the G/L control account. Accrued Liabilities - Answers Obligations payable in subsequent period for services received before the B/S date.