3. Following are commonly performed tests of controls and substantive tests of t

Question

3. Following are commonly performed tests of controls and substantive tests of transactions audit procedures:

1. Reconcile the recorded cash receipts on the prelisting with the cash receipts journal and the bank statement for a 1-month period.

2. Examine sales returns for approval by an authorized official.

3. Compare the quantity and description of items on shipping documents with the related duplicate sales invoices.

4. Review the prelisting of cash receipts to determine whether cash is prelisted daily.

Required: (a) Identify whether each audit procedure is a test of control or a substantive test of transactions. (b) Identify the type of evidence used for each audit procedures, such as analytical procedures, documentation, confirmation, observation, physical examination, and reperformance,

Procedure: Type of Test Type of evidence 1. Reconcile the recorded cash receipts on the prelisting with the cash receipts journal and the bank statement for a 1- month period. 2. Examine sales returns for approval by an authorized official. 3. Compare the quantity and description of items on shipping documents with the related duplicate sales invoices. 4. Review the prelisting of cash receipts to determine whether cash is prelisted daily.

Explanation / Answer

Answer a : In audit 1, audit procedure is a substantive test of transactions. substantive test of transaction means that an audit procedure that examines the financial statements and supporting documentation to check error.

  In audit 2, audit procedure is a test of control. In test of control. an audit procedure to test the effectiveness of a control to prevent or detect material misstatements.

In Audit 3, audit procedure is a substantive test of transactions. substantive test of transaction means that an audit procedure that examines the financial statements and supporting documentation to check error.

In Audit 4, audit procedure is a test of control. In test of control. an audit procedure to test the effectiveness of a control to prevent or detect material misstatements.

Answer b : In audit 1, Bank statement use as confirmation.

In audit 2, Sales return use as inspection.

In audit 3 , Duplicate sales invoice use as confirmation.

In audit 4, Review the prelisting of cash receipts to determine whether cash is prelisted daily use as a observation.

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