Transaction-related audit objective(s)

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Assignment 7

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20-17a.(2)b.(3)c.(3)

20-20

TYPE OF TEST

Transaction-related audit objective(s)

1.Substantive test of transactions

To decide if monthly payroll costs have been appropriately to be paid (accuracy)

2.Test of control

To decide if recorded payroll transactions are used for work truly performed via obtainable workers (occurrence)

3.Substantive test of transactions

To decide if staff are salaried for the hours they have worked (accuracy)

4.Substantive test of transactions

To decide if the correct person is paid as well as amount and time are accurate (accuracy and timing)

5.Substantive test of transactions

To decide if the accurate work is charged for labor along with if the amount is recorded appropriately for every job (classification plus accuracy)

6.Test of control

To decide if each and every one payroll checks are accounted (completeness)

7.Substantive test of transactions

To decide whether terminated staff were consequently salaried for work not performed (occurrence) as well as to decide whether an responsibility may perhaps exist for voluntary severance pay (completeness)

21-17a.(3)b.(2)c.(1)

21-18a.(1)b.(2)c.(2)

21-19a.(4)b.(3)c.(2)

21-20

Purpose of internal control

Test of control

Potential financial misstatement

Substantive audit procedure

1.For a accurate valuation of inventory (accuracy)

Investigate the receiving as well as requisition documents, along with trace to perpetual reports.

Misstatement of inventory

Contrast physical count to perpetual inventory record.

2.To construct certain physical inventory counts are correct (correctness, existence, plus completeness)

Monitor counting personnel, as well as discuss with customer.

Misstatement of inventory

Contrast physical count to perpetual inventory evidence.

3.To construct certain inventory compilation is correct (accuracy)

Monitor who accumulate the inventory, as well as discuss with customer.

Misstatement of inventory

Reperform clerical examination of inventory compilation.

4.To make certain inventory is recorded when acknowledged, payments completed are for products received, as well as quantities along with descriptions are correct (completeness, ,accuracy and existence)

Report for a numerical series of getting reports, as well as monitor matching invoices acknowledged from vendors.

Understatement of inventory otherwise compensation for products not acknowledged

Trace quantity and explanation on vendor's invoice to being paid report.

5.To diminish theft or else not recorded shipments of inventory (existence)

Converse with consumer, as well as monitor whether workforce organize shipping documents.

Overstatement of inventory

Contrast physical count to perpetual account.

6.To make certain inventory shipments are accounted like sales (completeness)

Account used for a statistical series of shipping orders.

Understatement of sales

Trace amount as well as descrip­tion on bills of lading to accounted sales.

7.To guarantee practical expenses are used for inventory as well as COGS(accuracy)

Evaluate actions for deciding standard expenses.

Misstatement of inventory

Trace expenses from supporting papers to development of standards.

8.To construct certain outdated products are categorize as such (accuracy)

Read guidelines, as well as discuss actions with customer.

Misstatement of inventory

Analytical actions used for inventory

24-22a.(2)b.(2)c.(1)

24-23a.(4)b.(2)c.(3)d.(4)

24-27

a.

A contingent liability is possible future commitments to an outside party for unidentified amount follow-on from activities that have previously occur. The mainly significant feature of a contingent liability is the vagueness of the amount; if the quantity was known, it would be consists of in the monetary statements the same as a definite liability moderately than as a contingency.

b.

Audit procedures to gain knowledge of regarding these items would be as below. The following

actions apply to every 3 items.

  1. Converse about the existence as well as nature of probable contingent liabilities with administration, and get hold of correct written representations.
  2. Evaluate the minutes of directors' along with stockholders' meetings used for signal of lawsuits otherwise other contingencies.
  3. Evaluate legal costs for the period under audit, as well as evaluate invoices along with statements of legal counsel used for indications of contingent liabilities.
  4. Get holds of letters from every major attorney doing legal services for the customer as to the position of pending litigation otherwise other contingent liabilities.

The subsequent are added procedures in favor of individual items:

Lawsuit verdict

  • There are no extra actions; notice above list of procedures relevant to every 3 items.

Stock dividend

  • Verify details of stock transactions by registrar as well as relocate agent.
  • Evaluate records for extraordinary journal entries following to year-end.

Assurance of interest payments

  • Converse about, exclusively, any associated party transactions with administration, and consist of data in letter of depiction.
  • Evaluate financial statements of partner, as well as where associated party transactions are obvious, construct direct investigation of associate administration and conceivably even look at records of associate if essential.

c.Nature of adjusting entries or else disclosure, if any, would be the same as below.

  1. The lawsuit is supposed to be explaining in a footnote to the balance sheet. In observation of the court verdict, retained earnings may perhaps be constrained for $4,000,000, the sum of the first court verdict. In addition in examination of the court verdict, any sensible approximation of the amount the corporation anticipates to pay as a consequence of the suit may perhaps be utilize in lieu of the $4,000,000. Therefore, a current liability will be established as soon as a concluding decision is rendered otherwise if an engagement like to damages is attain. In additionally, if liability is acknowledge via Marco, and simply the amount is in disagreement, a liability be able to be establish for the quantity acknowledge via the corporation with a equivalent charge to cost or made known like an extraordinary item if the sum is material.
  1. In the additional part I would like to mention that the declaration of such a dividend does not generate a liability that have an effect on the collective net worth in any way. The allocations of the dividend will basis a diminution in retained earnings as well as amplify in capital stock. No access is needed, excluding an indication of the act taken, in addition to that such a transfer will consequently be completed, be supposed to be exposed as a footnote otherwise as a memorandum to retained earnings along with common stock in the balance sheet.
  1. If disbursement via Newart is unsure, the $137,500 interest liability used for the period June 2 throughout December 1, 2011, could be replicate in the Marco Corporation's accounting records via the subsequent entry.

Interest payments for Newart Company$137,500

Accrued interest payable—Newart Bonds$137,500

The debit entry be supposed to be consists of the same as other assets. Compilation is unsure, as well as the Marco Corporation may perhaps not contain a right in opposition to the Newart Company until each and every one interest payments have been met along with the bonds retired. If this action is go after, the balance sheet be supposed to be footnoted to the consequence that the Marco company is contingently liable in favor of future interest payments on Newart corporation bonds in the sum of $2,200,000.

If the interest has been remunerated via the time the audit is finished, otherwise if for additional causes it seems convinced that the payment will be completed via Newart on January 15, no entry be supposed to be prepared via Marco. In this condition, a footnote reveal the contingent liability of $2,337,500 as well as the details as to the $137,500 be supposed to be incorporated with the statements.

24-28

a.

In this circumstances, Little require simply send requests for letters to those attorneys who are occupied with legal matters straightforwardly influencing the financial statements. In additionally, the letters be supposed to be sent logically near to the conclusion of the fieldwork, other than the follow-up on no reaction along with unsatisfactory responses be supposed to not be deferred in anticipation of the last day of fieldwork. Therefore, she is supposed to have inspected the letters when they were returned as well as performed follow-up job at that time. In addition, the third letter be supposed to have concentrate on the lawsuit if the customer knowledgeable the auditor of its existence.

b.

The auditor would be compulsory to follow up on the first attorney's letter via sending a second request otherwise calling the attorney to ask for a response. The second letter would not necessitate any supplementary follow-up owing to the nature of the work execute via this attorney. Concerning the third attorney's letter, it is essential to contain a conference with the attorney, customer, as well as auditor to decide the nature and consequence of the lawsuit. Therefore, it could be a serious violation of due is concerned to disregard the data in the third attorney's letter. In unusual situation, a disclaimer of judgment is essential if the information cannot be attained.

Reference:

Alvin A. Arens; Randal J. Elder; Mark S. Beasley , Auditing and Assurance Services: An Integrated Approach, 14TH Edition, Retrived from http://devry.vitalsource.com/#/books/9781256999058/pages/63143910

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