Direction of testing. Assume you are a SENIOR and you have been assigned a ne st
ID: 2425665 • Letter: D
Question
Direction of testing. Assume you are a SENIOR and you have been assigned a ne staff auditor to help on your engagement. Your audit plan calls for the new staff person to look at documents in the ‘ sales and collection’ cycle. As expected, the staff person is confused about the difference between ‘ tracing and vouching’.
1) Please draw a simple illustration of completion vs. occurrence.
2) Briefly describe tracing.
3) Briefly describe vouching.
4) Using the OCCURRENCE of SALES assertion as your objective- write out one audit procedure and explain to the new staff person if this is vouching or tracing.
5) Using the EXISTENCE of ACCUNTS RECEVABLE assertion as your objective write out one audit procedure and explain to the new staff person if this is vouching or tracing.
Explanation / Answer
Answer:1
Occurence:
It is a procedure of conducting the auditing. It is about what to audit.
For example: From online bookshop to accounts
Completeness:
From Start occurence to Execution to Finish occurence
Answer:2
Tracing refers to first selecting an accounting transaction (a source document) and then following it into the journal or ledger. The direction of testing in this case is from the source documents to the journals or ledgers and tests whether transactions that occurred are recorded (completeness) in the accounting records.
Answer:3
Vouching is a technical term, which refers to the inspection of documentary evidence supporting and substantiating a transaction, by an auditor. It is the essence of Auditing
It is the practice followed in an audit, with the objective of establishing the authenticity of the transactions recorded in the primary books of account. It essentially consists of verifying a transaction recorded in the books of account with the relevant documentary evidence and the authority on the basis of which the entry has been made; also confirming that the amount mentioned in the voucher has been posted to an appropriate account which would disclose the nature of the transaction on its inclusion in the final statements of account. Vouching does not include valuation.
Answer: 4
Sales Transactions Existence
Ø Test of control – Examine sales invoice for supporting bill of lading and customer order.
Sales Transactions Completeness
Ø Test of control – Account for sequence of shipping documents.
Sales Transactions Accuracy
Ø Test of control – Examine the approved price list for accuracy and proper authorization.
Sales Transactions Timing
Ø Test of control – Examine document package for duplicate verification.
Sales Transactions Posting and Summarization
Ø Test of control –Account for sequence of shipping documents.
Sales Return and Allowance Audit Objectives
Ø Test of control – Examine evidence that accounts receivable master file is reconciled to the general ledger.
This procedure involves a mix of vouching and tracing.
Answer:5
For accounts receivables, the followinf procedure is described below:
Trace receivable report to general ledger. The auditors will ask for a period-end accounts receivable aging report, from which they trace the grand total to the amount in the accounts receivable account in the general ledger. (If these totals do not match, you may have a journal entry somewhere in the general ledger account that should not be there).
As the name suggest, it is fully tracing.
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