18–28 (continued)
a.
BERGERON
INTERNAL CONTROLS
b.
TRANSACTION–
RELATED AUDIT
OBJECTIVE(S)
c.
TEST OF CONTROLS
11. Controller reconciles
on a monthly basis the
accounts payable listing
to the accounts payable
general ledger account.
Controller initials
reconciliation upon
completion.
Posting and
summarization
Examine a sample of monthly
reconciliations to determine
they are initialed and
prepared properly.
12. Independent inventory
counts are obtained
quarterly and reconciled
to the perpetual inventory
records.
Occurrence,
Completeness,
Accuracy
Observe client inventory
count teams during one of
the quarterly inventory
counts to determine
whether they are following
the client’s inventory
counting procedures.
18–29 a. It is an appropriate procedure to have the client perform the
reconciliations of vendors’ statements as long as the auditor maintains
amount of time.
For Statement 2, the auditor should request that the vendor
provide additional details of the account balance. Otherwise, the
auditor will not be able to use the vendor’s statement and will have
to include the $5,735.69 as a potential misstatement.
June 30, including consideration of inventory.
The Statement 4 reconciliation is incorrect. The payment by
Milner on July 3 should not have been deducted from the accounts
18-29
18–29 (continued)
inventory at June 30. This may be accomplished by requesting
that the vendor send proof of shipment for the goods invoiced.
c. The auditor must consider whether the coverage achieved by the
suppliers, the auditor may wish to reconcile these statements.
■ Case – Ward Publishing Company
Application of audit sampling is not appropriate for Procedures 1
through 8 due to the nature of the procedures. In this case, audit sampling
is also not appropriate for Procedure 10 because the sampling unit is a
line item in the cash disbursements journal. The sampling data sheet
DESCRIPTION
OF ATTRIBUTE
PLANNED AUDIT
EPER
TER
ARO*
9.a.
Entry in CD journal agrees with
details on cancelled check.
0%
6%
10%
9.b.(1)
All supporting documents attached
to vendor’s invoice.
1%
5%
10%
9.b.(2)
Documents agree with
disbursements.
0%
6%
10%
18-30
18-30 (continued)
DESCRIPTION
OF ATTRIBUTE
PLANNED AUDIT
EPER
TER
ARO*
9.b.(3)
Entry in CD journal agrees with
details on vendor’s invoice.
0%
6%
10%
9.b.(4)
Discount was taken as appropriate.
0%
6%
10%
9.b.(5)
Vendor’s invoice initialed.
1%
5%
10%
9.b.(6)
Account coding reasonable.
0%
6%
10%
9.b.(7)
Purchases approved by Ward.
1%
5%
10%
9.b.(8)
P.O. or P.R. properly approved.
1%
5%
10%
9.b.(9)
Prices, footings, and extensions
are correct.
0%
6%
10%
9.b.(10)
Details on supporting documents
agree.
0%
6%
10%
9.b.(11)
Documents properly completed
and cancelled upon payment.
1%
5%
10%
* For a nonstatistical sampling data sheet, ARO columns should indicate “medium” for all attributes.
18–30 (continued)
Part II
a. Attributes sampling approach: The results portion of the sampling
data sheet are as follows:
ATTRIBUTE
NO.
SAMPLE
SIZE
EXCEPTIONS
SAMPLE
EXCEPTION
RATE
CUER
9.a.
9.b. (1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
50
50
50
50
50
50
50
50
50
50
50
50
0
1*
0
0
0
6*
3**
0
0
0
0
0
0
2%
0
0
0
12%
6%
0
0
0
0
0
4.6%
7.6%
4.6%
4.6%
4.6%
20.2%
12.9%
4.6%
4.6%
4.6%
4.6%
4.6%
* Control deviations
** Monetary misstatements
Nonstatistical approach: Because CUER under nonstatistical
sampling is estimated using auditor judgment, students’ answers
to this question will vary. They will most likely be similar to the
CUERs calculated using attributes sampling.
Because the SER is zero for attributes 9.a., 9.b.(2) through (4),
and 9.b.(7) through (11), it is unlikely that students will estimate
CUER greater than the TER of 5% (tests of controls) or 6%
18-32
18–30 Part II (continued)
b. Exception 1 is not an exception, and has no effect on tests of
details of accounts payable.
Exception 2 is a control deviation. Even though it is not a
monetary misstatement, controls require the presence of all
supporting documents before a purchase and the related
disbursement are processed. If an invalid purchase is recorded,
the liability and the related debited account may be overstated. If
Exception 3 is a control deviation where one–half of those
items also contain monetary misstatements. Misclassification is a
serious misstatement. However, it relates to the debit entry, not
c. An audit program for accounts payable is shown on the following
page. The balance–related audit objectives tested by each procedure
are indicated. Because the appropriate acceptable audit risk
18-33
18–30 Part II (continued)
BALANCE–RELATED
AUDIT OBJECTIVES
Detail tie–in
Existence
Completeness
Accuracy
Classification
Cutoff
Obligations
1. Obtain list of accounts payable. Foot the list
and agree to general ledger.
X
2. Trace all items on the list over $10,000 to
vendor’s invoice and supporting documents.
X
X
3. Obtain vendor’s statements for 20 vendors
with greatest volume of purchases, plus
10 others, by confirmation. Reconcile
statements to accounts payable list.
X
X
X
X
4. Examine all subsequent period disbursements
and payments in process of amounts over
$5,000 to determine if they were recorded in
the proper period.
X
X
5. Review the list of accounts payable for proper
classification of accounts due to related
parties, debit balances, or items with unusual
terms.
X
considered necessary for obligations.