This Question Requires Knowledge About Specific Account Balance Assertions, General

question 16

Essay

This question requires knowledge about specific account balance assertions, general audit procedures, and trade accounts payable.
You are assigned to audit trade accounts payable at Green Corporation, whose business is wholesale and retail trade. Green purchases products from 1,000-2,000 manufacturers and sells the products to its retail and wholesale customers. The general ledger shows a trade accounts payable balance as of the balance sheet date in the amount of $42 million (the balance comprises 70% of current liabilities, 50% of total liabilities, and 35% of total liabilities and shareholders' equity). Green's accountants post summary entries from the purchases journal and from the cash disbursements journal to the accounts payable control account each month. The accounts payable manager gave you a detailed trial balance that lists all the recorded, unpaid invoices (recording date, vendor name, vendor invoice number, invoice date, and amount) subtotalled by vendor.
Other members of the audit team have already decided to assess control risk at maximum for accounts payable. The engagement manager gave you last year's audit working papers and told you not to use the audit program from last year because it was no longer appropriate. The first part of your assignment is to write the audit program for the audit of Green's trade accounts payable.
Required:
For each of the general assertions EXISTENCE, COMPLETENESS, and VALUATION, write two or more specific audit procedures designed to produce appropriate evidence about Green's trade accounts payable balance.

Understand the conditions under which the central limit theorem applies to sampling distributions involving differences between means.

Calculate and interpret p-values and test statistics for hypothesis tests concerning population means and proportions.

Conduct and interpret the results of hypothesis tests for differences between two population means using sample data.

Analyze hypotheses and make decisions based on p-value and significance level criteria.

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Definitions:

Taxpayers

Individuals or entities that are obligated to pay taxes to a governmental authority.

Involuntary Conversion

An event where property is destroyed, stolen, condemned, or disposed of under the threat of condemnation, and the owner receives other property or compensation in replacement.

Recognized Gain

The portion of gain considered for tax purposes when an asset is sold or disposed of, which may differ from the actual profit realized.

Basis

The initial value of an asset for tax purposes, used to determine gain or loss on sale or disposition.