Chapter 6: Solutions

6-27 a.

b. c.
GENERAL
TRANSACTION-
SPECIFIC TRANSACTION- MANAGEMENT RELATED AUDIT
RELATED AUDIT OBJECTIVE ASSERTION OBJECTIVE

a. Recorded cash disbursement 3. Accuracy 8. Accuracy

transactions are for the amount of
goods or services received and
are correctly recorded.

b. Cash disbursement transactions 3. Accuracy 9. Posting and

are properly included in the summarization
accounts payable master file and
are correctly summarized.

c. Recorded cash disbursements 1. Occurrence 6. Occurrence

are for goods and services
actually received.

d. Cash disbursement transactions 4. Classification 10. Classification

are properly classified.

e. Existing cash disbursement 2. Completeness 7. Completeness

transactions are recorded.

f. Cash disbursement transactions 5. Cutoff 11. Timing

are recorded on the correct dates.
6-29 a. The first objective concerns amounts that should not be included on
the list of accounts payable because there are no amounts due to
such vendors. This objective concerns only the overstatement of
accounts payable. The second objective concerns the possibility
of accounts payable that should be included but that have not been
included. This objective concerns only the possibility of understated
accounts payable.
b. The first objective deals with existence and the second deals with
completeness.
c. For accounts payable, the auditor is usually most concerned about
understatements. An understatement of accounts payable is usually
considered more important than overstatements because of potential
legal liability. The completeness objective is therefore normally more
important in the audit of accounts payable. The auditor is also
concerned about overstatements of accounts payable. The existence
objective is also therefore important in accounts payable, but
usually less so than the completeness objective.
6-30

PRESENTATION
BALANCE- TRANSACTION AND
RELATED RELATED DISCLOSURE
AUDIT AUDIT AUDIT
AUDIT PROCEDURE OBJECTIVE OBJECTIVE OBJECTIVE
a. Examine a sample of duplicate sales invoices to determine whether (9) Occurrence
each one has a shipping document attached.
b. Add all customer balances in the accounts receivable trial balance and (6) Detail Tie-In
agree the amount to the general ledger.
c. For a sample of sales transactions selected from the sales journal, (14) Posting and
verify that the amount of the transaction has been recorded in the summarization
correct customer account in the accounts receivable subledger.
d. Inquire of the client whether any accounts receivable balances have
been pledged as collateral on long-term debt and determine whether all (15) Occurrence
required information is included in the footnote description for long-term and rights
debt.
e. For a sample of shipping documents selected from shipping records,
trace each shipping document to a transaction recorded in the sales (10) Completeness
journal.
f. Discuss with credit department personnel the likelihood of collection of
all accounts as of December 31, 2009 with a balance greater than (7) Realizable value
$100,000 and greater than 90 days old as of year-end.
g. Examine sales invoices for the last five sales transactions recorded in
the sales journal in 2009 and examine shipping documents to (5) Cutoff
determine they are recorded in the correct period.
h. For a sample of customer accounts receivable balances for December
(1) Existence
31, 2009, examine subsequent cash receipts in January 2010 to
(7) Realizable value
determine whether the customer paid the balance due.