Below Are 12 Audit Procedures

question 45

Essay

Below are 12 audit procedures. Classify each procedure according to the following types of audit evidence: 1) inspection, 2) external confirmation, 3) recalculation, 4) observation, 5) inquiry of the client, 6) reperformance, and 7) analytical procedure.
$$\begin{array} { | l | l | } \hline \begin{array} { l } \text { Type of } \\\text { Evidence }\end{array} & \text { Audit Procedures } \\\hline & \text { 1. Watch client employees count inventory to determine whether } \\& \text { company procedures are being followed. } \\\hline & \text { 2. Count inventory items and record the amount in the audit } \\& \text { working papers. } \\\hline & \begin{array} { l } \text { 3. Stand by the payroll time clock to determine whether any } \\\text { employee "punches in" more than one time. }\end{array} \\\hline & \begin{array} { l } \text { 4. Calculate the ratio of cost of goods sold to sales as a test of } \\\text { overall reasonableness of gross margin relative to the preceding } \\\text { year. }\end{array} \\\hline & \begin{array} { l } \text { 5. Obtain information about the client's internal controls by asking } \\\text { questions of client personnel. }\end{array} \\\hline & \begin{array} { l } \text { 6. Trace totals from the cash disbursements journal to the general } \\\text { ledger. }\end{array} \\\hline & \begin{array} { l } \text { 7. Examine a piece of equipment to make sure a recent purchase } \\\text { of equipment was actually received and is in operation. }\end{array} \\\hline & \begin{array} { l } \text { 8. Review the total of repairs and maintenance for each month to } \\\text { determine whether any month's total was unusually large. }\end{array} \\\hline & \text { 9. The auditor computes the debt covenant based on the financial } \\\text { information to ensure that the client's calculation was performed } \\\text { correctly. } & \text { 10. Re-foot entries in the sales journal to determine whether they } \\& \text { were correctly totalled by the client. } \\\hline & \begin{array} { l } 11 . \text { Make a surprise count of petty cash to verify that the amount } \\\text { of the petty cash fund is intact. }\end{array} \\\hline \begin{array} { l } 12 . \text { Obtain a written statement from the client's bank stating the } \\\text { client'syear-end balance on deposit. }\end{array} \\\hline\end{array}$$

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Definitions:

Constant Dollar

A term used to describe a dollar value that has been adjusted for inflation to reflect purchasing power at a specific point in time.

Real GDP

Gross Domestic Product adjusted for inflation, measuring the value of all goods and services produced by an economy in real terms.

Intermediate Goods

Products that are used as inputs in the production of other goods or services, not sold directly to end consumers.

Consumer Price Index

An index measuring the change in price of a standard basket of goods and services, reflecting the cost of living.