AT-QUIZZER SET-D NAME:

PART-I
Items 1 through 6 represent the items that an auditor ordinarily would find on a client-prepared bank reconciliation. The
accompanying List of Auditing Procedures represents substantive auditing procedures. For each item, select one or more pro-
cedures, as indicated, that the auditor most likely would perform to gather evidence in support of that item. The procedures on the
List may be selected once, more than once, or not at all.
Assume
• The client prepared the bank reconciliation on 10/2/18.
• The bank reconciliation is mathematically accurate.
• The auditor received a cutoff bank statement dated 10/7/18 directly from the bank on 10/11/18.
• The 9/30/18 deposit in transit, outstanding checks #1281, #1285, #1289, and #1292, and the correction of the error re-
garding check #1282 appeared on the cutoff bank statement.
• The auditor assessed control risk concerning the financial statement assertions related to cash at the maximum.
List of Auditing Procedures
A. Trace to cash receipts journal. F. Inspect bank debit memo.
B. Trace to cash disbursements journal. G. Ascertain reason for unusual delay.
C. Compare to 9/30/18 general ledger. H. Inspect supporting documents for reconciling item not appear-
D. Confirm directly with bank. ing on cutoff statement.
E. Inspect bank credit memo. I. Trace items on the bank reconciliation to cutoff statement.
J. Trace items on the cutoff statement to bank reconciliation.
General Company
BANK RECONCILIATION
1ST NATIONAL BANK OF US BANK ACCOUNT
September 30, 2018
1. Select 2 Procedures — Balance per bank P 28,375
2. Select 5 Procedures—Deposits in transit
9/29/18 P4,500
9/30/18 1,525 6,025
34,400
3. Select 5 Procedures—Outstanding checks
# 988 8/31/18 2,200
#1281 9/26/18 675
#1285 9/27/18 850
#1289 9/29/18 2,500
#1292 9/30/18 7,225 (13,450)
20,950
4. Select 1 Procedure — Customer note collected by bank (3,000)
Error: Check #1282, written on
5. Select 2 Procedures — 9/26/18
for P270 was erroneously charged by bank
as P720; bank was notified on 10/2/18 450
6. Select 1 Procedure — Balance per books P 18,400

PART- II

Items 1 through 12 represent possible errors and fraud that you suspect may be present at General Company. The accom-
panying List of Auditing Procedures represents procedures that the auditor would consider performing to gather evidence con-
cerning possible errors and fraud. For each item, select one or two procedures, as indicated, that the auditor most likely would
perform to gather evidence in support of that item. The procedures on the list may be selected once, more than once, or not at all.
SET-D

List of Auditing Procedures

A. Compare the details of the cash receipts journal entries L. Examine the entity’s shipping documents to verify that the
with the details of the corresponding daily deposit slips. merchandise that produced the receivable was actually sent
B. Scan the debits to the fixed asset accounts and vouch to the customer.
selected amounts to vendors’ invoices and management’s M. Inspect the entity’s correspondence files for indications of
authorization. customer disputes for evidence that certain shipments were
C. Perform analytical procedures that compare documented on consignment.
authorized pay rates to the entity’s budget and forecast. N. Perform edit checks of data on the payroll transaction tapes.
D. Obtain the cutoff bank statement and compare the cleared O. Inspect payroll check endorsements for similar
checks to the year-end bank reconciliation. handwriting.
E. Prepare a bank transfer schedule. P. Observe payroll check distribution on a surprise basis.
F. Inspect the entity’s deeds to its real estate. Q. Vouch data in the payroll register to documented
G. Make inquiries of the entity’s attorney concerning the authorized pay rates in the human resources department’s
details of real estate transactions. files.
H. Confirm the terms of borrowing arrangements with the R. Reconcile the payroll checking account and determine if
lender. there were unusual time lags between the issuance and
I. Examine selected equipment repair orders and supporting payment of payroll checks.
documentation to determine the propriety of the charges. S. Inspect the file of prenumbered vouchers for consecutive
J. Send requests to confirm the entity’s accounts receivable numbering and proper approval by an appropriate
on a surprise basis at an interim date. employee.
K. Send a second request for confirmation of the receivable T. Determine that the details of selected prenumbered
to the customer and make inquiries of a reputable credit vouchers match the related vendors’ invoices.
agency concerning the customer’s creditworthiness. U. Examine the supporting purchase orders and receiving
reports for selected paid vouchers.
Possible misstatements due to errors and fraud
1. The auditor suspects that a kiting scheme exists because an accounting department employee who can issue and record
checks seems to be leading an unusually luxurious lifestyle. (Select only 1 procedure)
2. An auditor suspects that the controller wrote several checks and recorded the cash disbursements just before year-end but
did not mail the checks until after the first week of the subsequent year. (Select only 1 procedure)
3. The entity borrowed funds from a financial institution. Although the transaction was properly recorded, the auditor sus-
pects that the loan created a lien on the entity’s real estate that is not disclosed in its financial statements. (Select only 1
procedure)
4. The auditor discovered an unusually large receivable from one of the entity’s new customers. The auditor suspects that the
receivable may be fictitious because the auditor has never heard of the customer and because the auditor’s initial attempt to
confirm the receivable has been ignored by the customer. (Select only 2 procedures)
5. The auditor suspects that fictitious employees have been placed on the payroll by the entity’s payroll supervisor, who has
access to payroll records and to the paychecks. (Select only 1 procedure)
6. The auditor suspects that selected employees of the entity received unauthorized raises from the entity’s payroll supervisor,
who has access to payroll records. (Select only 1 procedure)
7. The entity’s cash receipts of the first few days of the subsequent year were properly deposited in its general operating ac-count
after the year-end. However, the auditor suspects that the entity recorded the cash receipts in its books during the last week of
the year under audit. (Select only 1 procedure)
8. The auditor suspects that vouchers were prepared and processed by an accounting department employee for merchandise
that was neither ordered nor received by the entity. (Select only 1 procedure)
9. The details of invoices for equipment repairs were not clearly identified or explained to the accounting department employ-
ees. The auditor suspects that the bookkeeper incorrectly recorded the repairs as fixed assets. (Select only 1 procedure)
10. The auditor suspects that a lapping scheme exists because an accounting department employee who has access to cash re-
ceipts also maintains the accounts receivable ledger and refuses to take any vacation or sick days. (Select only 2 proce-
dures)
11. The auditor suspects that the entity is inappropriately increasing the cash reported on its balance sheet by drawing a check on
one account and not recording it as an outstanding check on that account and simultaneously recording it as a deposit in a
second account. (Select only 1 procedure)
12. The auditor suspects that the entity’s controller has overstated sales and accounts receivable by recording fictitious sales to
regular customers in the entity’s books. (Select only 2 procedures)
SET-D
PART-III
DietWeb Inc. (hereafter DietWeb) was incorporated and began business in March of 20X1, seven years ago. You are
working on the 20X8 audit—your CPA firm’s fifth audit of DietWeb. For each audit objective, select a substantive procedure
that would help to achieve that objective. Each of the procedures may be used once, more than once, or not at all.
Substantive procedure
A. Trace opening balances in the summary schedules to the prior year’s audit working papers.
B. Review the provision for deprecation expense and determine that depreciable lives and methods used in the current
year are consistent with those used in the prior year.
C. Determine that responsibility for maintaining the property and equipment records is segregated from the responsibil-ity
for custody of property and equipment.
D. Examine deeds and title insurance certificates.
E. Perform cutoff test to verify that property and equipment additions are recorded in the proper period.
F. Determine that property and equipment is adequately insured.
G. Physically examine all recorded major property and equipment additions.
H. Analyze repairs and maintenance expense.
Audit Objective
(A) (B) (C) (D) (E) (F) (G) (H)
1. DietWeb has legal rights to property and equipment acquired during
the year.
2. DietWeb recorded property and equipment acquired during the year
that did not actually exist at the balance sheet date.
3. DietWeb’s property and equipment was properly valued at the balance
sheet date.
4. DietWeb recorded all property and equipment assets that were
purchased near year-end.
5. DietWeb recorded all property retirements that occurred during the
year.
6. DietWeb capitalized all acquisitions that occurred during the period.

PART-IV
For each audit objective listed below select the most appropriate audit procedure for raw materials inventory (Items 1-3)
and for Accounts Receivable (Items 4-6). Audit procedures may be used once, more than once, or not at all.
List of audit procedures for raw materials inventory
A. Compare standard costs of inventories with standardized market values.
B. Determine that all direct labor and overhead has been expensed and not included in inventory valuation.
C. Examine vendors’ invoices.
D. Perform analytical procedures comparing inventory to various industry averages.
E. Review drafts of financial statement note disclosures.
F. Select a sample of items during the physical count and determine that the client has included items on inventory count
sheets.
G. Select a sample of recorded items on count sheets and determine that the items are on hand.
(A) (B) (C) (D) (E) (F) (G)
1. Determine that company legally owns inventories.
2. Establish the completeness of inventories.
3. Determine that the cost of inventories is proper.
List of audit procedures for accounts receivable
A. Analyze relationships between accounts receivable balances and changes in the current portion of long-term debt.
B. Compare accounts receivable on the accounts receivable lead schedule with those on supporting audit schedules.
C. Compare total 20X8 annual sales with those of 20X7.
D. Examine December 20X8 sales journal and determine that sales are properly recorded in December.
E. Examine January 20X9 sales journal and determine that sales are properly recorded in January.
F. Inquire of credit manager about the collectability of various receivables.
G. Review disclosure checklist for recommended and required accounts receivable disclosures.
(A) (B) (C) (D) (E) (F) (G)
4. Determine that all accounts receivable are properly recorded as of year-end.
5. Determine that accounts receivable are properly valued at net realizable value.
6. Note disclosures related to accounts receivable are proper.