kunci jawaban arens Chapter 13

Chapter 13 Overall Audit Plan and Audit Program



Review Questions

The The five five types types of test tests s audi audito tors rs use to deter determi mine ne whet whether her fina financi ncial al statements are fairly stated include the following:

13-1

    

Risk assessment procedures Tests of controls Substantive tests of transactions  Analytical procedures Tests of details of balances

While risk assessment procedures (procedures to gain an understanding of the entity and its environment, including internal control help the financial statement auditor obtain information to make an initial assessment of control risk, tests of controls must be performed as support of an assessment of control risk that is below ma!imum" The purpose of tests of controls is to obtain evidence regarding the effectiveness of controls, which may allow the auditor to assess control risk below ma!imum" #f controls are found to be effective and functioning, the substantive evidence may be reduced" Substantive evidence is obtained to reduce detection risk" Substantive Substantive evidence includes includes evidence evidence from substantive substantive tests of transactions, analytical procedures, and tests of details of balances" $or audits of internal control over financial reporting, the auditor only performs the first two types types of audit tests: procedures to obtain an understanding of internal control and tests of controls" %ecause a public company auditor auditor must issue issue a report report on interna internall contro controll over over financ financial ial report reporting ing,, the e!tent of the audit auditor& or&s s test tests s of cont control rols s must must be suff suffic icie ient nt to issu issue e an opin opinio ion n abou aboutt the the operating effectiveness of those controls" That generally re'uires a significant amount of testing of controls over financial reporting" Risk assessment assessment procedures are performed to assess the risk of material material misstatement in the financial statements" Risk assessment procedures include proc proced edur ures es perf perfor orme med d to obta obtain in an unde unders rsta tand ndin ing g of the the enti entity ty and and its its environ environment ment,, includ including ing interna internall contro controls" ls" Auditors Auditors use the results results of the risk risk assessment procedures to design and perform perform further audit procedures" $urther  audit procedures (not risk assessment procedures provide the auditor sufficient appropriate evidence, re'uired by the third AAS fieldwork standard"

13-2

)*+)

Tests of controls are audit procedures pr ocedures to test the operating effectiveness of  control policies and procedures in support of a reduced assessed control risk" Tests of controls provide the primary basis for a public company auditor&s report on interna internall control controls s over over financ financial ial report reporting ing"" Specif Specific ic account accounts s affect affected ed by performing tests of controls for the ac'uisition and payment cycle include the following: cash, accounts payable, purchases, purchase returns and allowances, purch purchase ase disco discoun unts ts,, manu manufa fact ctur uring ing e!pen e!pense ses, s, sell selling ing e!pen e!pense ses, s, prepa prepaid id insurance, leasehold improvements, and various administrative e!penses"

13-3

Tests of controls are audit procedures pr ocedures to test the operating effectiveness of  control policies and procedures in support of a reduced assessed control risk" !amples include: 13-4

)" The The e!ami e!amina nati tion on of ven vendo dorr invoi invoice ces s for ind indic icat atiion tha thatt they they have been clerically tested, compared to a receiving report and purchase order, and approved for payment" -" !am !amin inat atio ion n of emp emplo loy yee tim time e card cards s for for app appro rova vall of over overti time me hours worked" *" !am !amin inat atio ion n of of .ou .ourn rnal al entr entrie ies s for for prop proper er appr approv oval al"" /" !am !amin inat atio ion n of of app appro rova vals ls for for the the write rite+o +off ff of bad bad deb debts ts"" Substantive tests of transactions are audit procedures testing for monetary misstatement misstatements s to determine determine whether whether the si! transaction+relate transaction+related d audit ob.ectives ob.ectives have been satisfied for each class of transactions" !amples are: )" Reca Recalc lcul ulat atio ion n of amo amoun unts ts ('u ('uan anti tity ty tim times es uni unitt sell sellin ing g pric price e on selected sales invoices and tracing of amounts to the sales  .ournal" -" !amination of vendor invoices in support of amounts recorded in the ac'uisitions .ournal for purchases of inventories" *" Reca Recalc lcul ulat atio ion n of gros gross s pay pay for for sel selec ecte ted d entr entrie ies s in the the pay payroll roll  .ournal" /" Traci acing of of sele select cted ed cus custo tom mer cash cash rec recei eipt pts s to the the acco accoun unts ts receivable master file, agreeing customer names and amounts" 13-5  A test of control audit procedure to test that approved wage rates are used

to calculate employees0 earnings would be to e!amine rate authori1ation forms to determine the e!istence of authori1ed signatures"  A substantive test of o f transactions audit procedure would be to compare compar e a sample of rates actually paid, as indicated in the earnings record, to authori1ed pay rates on rate authori1ation forms"

)*+-

The auditor resolves the problem by making assumptions about the results of the tests of controls and performing both the tests of controls and substantive tests of transactions on the basis of these assumptions" 2rdinarily the auditor  assum assumes es an effe effect ctiv ive e syste system m of inte intern rnal al cont control rol with with few few or no e!cep e!cepti tion ons s planned" #f the results of the tests of controls are as good as or better than the assumptions that were originally made, the auditor can be satisfied with the substantive tests of transactions, unless the substantive tests of transactions themse themselve lves s indica indicate te the e!iste e!istence nce of missta misstatem tement ents" s" #f the tests tests of controls controls results were not as good as the auditor assumed in designing the original tests, e!panded substantive tests must be performed"

13-6

The primary purpose of testing sales and cash receipts transactions is to evaluate the internal controls so that the scope of the substantive tests of the account balances may be set" #f the auditor performs the tests of details of  balances prior to testing internal controls, no benefit will be derived from the tests of cont contro rols ls"" The audi audito torr shou should ld atte attemp mptt to unde unders rsta tand nd the the enti entity ty and and its its environment, including internal controls, as early as practical through the analysis of the accounting system, tests of controls, and substantive tests of transactions"

13-

When the results of analytical procedures are different from the auditor0s e!pect e!pectati ations ons and thereby thereby indicate indicate that there there may be a missta misstatem tement ent in the balance in accounts receivable or sales, the auditor should e!tend the tests to deter determi mine ne why why the the rati ratios os are diff differe erent nt from from e!pec e!pecta tati tion ons" s" 3onf 3onfir irma mati tion on of  accounts receivable and cutoff tests for sales are two procedures that can be used to do this" 2n the other hand, if the ratios are appro!imately what the auditor e!pects, the other tests can be reduced" This means that the auditor can sati satisf sfy y the the evid eviden ence ce re'u re'uir irem emen ents ts in diff differ eren entt way ways and and that that anal analyt ytic ical al procedures and confirmation are complementary when the results of the tests are both good" 13-!

Substantive tests of transactions are performed to verify the accuracy of a clie client nt0s 0s accou account ntin ing g syst system" em" This This is accom accompl plis ished hed by dete determ rmin inin ing g whet whether  her  individual transactions are correctly recorded and summari1ed in the .ournals, master master files, files, and general general ledger ledger"" Substa Substanti ntive ve tests tests of transa transacti ctions ons are also also concerne concerned d with with classes  of transactions, such as payroll, ac'uisitions, or cash receipts" Tracing amounts from a file of vouchers to the ac'uisitions .ournal is an e!ample of a substantive test of transactions for the ac'uisition and payment cycle" cycle" Tests Tests of detail details s of balances balances verify verify the ending ending balance balance in an individual  account (such as inventory, accounts receivable, or depreciation e!pense on the fina financ ncia iall stat statem emen ents ts"" An e!am e!ampl ple e of a test test of deta detailils s of bala balanc nces es for for the the ac'uisition and payment cycle is to physically e!amine a sample of the client0s fi!ed assets" 13-"

)*+*

13-1# )"

Control #1 -- Computer verification of the customer’s credit limit "

The presenc presence e of strong strong general general contro controls ls over over softw software are program programs s and mast master er file file chan changes ges can can sign signif ific icant antly ly reduc reduce e the the audi audito tor&s r&s test testin ing g of  automated automated controls such as control 4)" 2nce it is determined determined that control control 4) is functioning properly, the auditor can focus subse'uent tests on asses assessi sing ng whet whethe herr any chan changes ges have have occur occurred red that that woul would d limi limitt the the effectiveness of the control" Such tests might include determining whether  any changes have occurred to the program and whether these changes were properly authori1ed and tested prior to implementation" These are all tests of general controls over software programs and master file changes" Control Control #2  5 The accounts receivable clerk matches bills of lading, sales invoices, and customer orders before recording in the sales journal.

2.

This control is not an automated control, but is rather a manual control performed by an employee" eneral controls over software programs and master file changes would have little effect on the auditor&s testing of  control 4-" #f the auditor identifies identifies control 4- as a key control control in the sales and collection cycle, he or she would most likely e!amine a sample of the underl underlyin ying g documen documents ts for the account accounts s receiva receivable ble clerk& clerk&s s initia initials ls and reperform the comparisons" 13.11

The audit of fi!ed asset additions normally involves the e!amination of  invoices in support of the additions and possibly the physical e!amination of the additions" These procedures are normally performed on a test basis with a concentration on the more significant additions" #f the individual responsible for recording new ac'uisitions is known to have inade'uate training and limited e!perience in accounting, the sample si1e for the audit proc proced edur ures es shou should ld be e!pa e!pand nded ed to incl includ ude e a larg larger er samp sample le of the the additions for the year" #n addition, in'uiry as to what additions were made duri during ng the the year year may be made made by the the audi audito torr of plant plant manage managers, rs, the controller, or other operating personnel" The auditor should then search the financial records to determine that these additions were recorded as fi!ed assets" 3are 3are shou should ld also also be take taken n when when the the repa repair irs s and and main mainte tena nanc nce e e!pense e!pense account account is analy1 analy1ed ed since since lack lack of traini training ng may cause some depreciable assets to be e!pensed at the time of ac'uisition"

13-12 The following shows which types of evidence are applicable for the five

types of tests"

)*+/

$%P& O' &()*&+C&

$%P&, O' $&,$,

6hysical e!amination

Tests of details of balances

3onfirmation

Tests of details of balances

7ocumentation

 All e!cept analytical procedures

2bservation

Risk Risk assess assessmen mentt procedu procedures res and tests tests of  controls

#n'uiries of the client

 All five types

Reperformance

Tests sts of cont contro rols ls,, subs substa tant ntiv ive e test tests s of  transactions, and tests of details of balances

 Analytical procedures

 Analytical procedures

Recalculation

Substantive tests of transactions and tests of  details of balances

ar e: 13-13 oing from most to least costly, the types of tests are:     

13.14

Tests of details of balances Substantive tests of transactions Tests of controls Risk assessment procedures  Analytical procedures

3 represents the auditor0s assessment of the effectiveness of internal control" 3* represents the idea that internal controls are ineffective and no assurance can be obtained from controls and all assurance must come from substantiv substantive e testing" This would would not represent represent the audit of a public company&s financial statements" Tests Tests of controls co ntrols at the 3) level would provide minimum control risk" This would re'uire more testing of the controls than would be re'uired at either 3- or 3*" Testing controls at the 3 ) level allows the auditor to obtain assurance from the controls, thereby allowing for a reduction in the

13-14 .ontinued/

amount of substantive substantive testing testing which must be performed performed to meet the level of acceptable audit assurance" 3) reflects the level of testing of controls necessary for the audit of internal controls over financial reporting re'uired by 63A2% Standard -" #t would be a good decision to obtain assurance from tests of  cont contro rols ls at poin pointt 3) espe especi cial ally ly if the the cost cost of subs substa tant ntiv ive e test testin ing g is considerably greater than tests of controls"  At point 3-, the auditor performs some tests of controls and is able to reduce control risk below ma!imum" 6oint 3 - would be appropriate appropriate if it is cost beneficial for the auditor to obtain assurance at a level between the two e!tremes mentioned above (3 ) and 3*"

)*+8

13-15 %y identifying the best mi! of tests the auditor can accumulate sufficient

appro appropri priat ate e evid eviden ence ce at mini minimu mum m cost cost"" The The audi audito torr can can there thereby by meet meet the the standards of the profession and still be cost effective and competitive" 13-16 The four+step approach to designing tests of controls and substantive

tests of transactions is as follows: )" Appl Apply y the the tran transa sact ctio ion+ n+re rela late ted d audi auditt ob.e ob.ect ctiv ives es to to the the clas class s of  transactions being tested" -" #den #denti tify fy spe speci cifi fic c cont contro roll poli polici cies es and and pro proce cedu dure res s that that sho shoul uld d reduce control risk for each transaction+related audit ob.ective" *" 7eve 7evelo lop p appr approp opri riat ate e test tests s of of con contr trol ols s for for eac each h key key con contr trol ol"" /" 7esign appropriate substantive tests of transactions consider considering ing defici deficienci encies es in interna internall contro controll and e!pect e!pected ed results results from * above" 13-1 The approac approach h to design designing ing tests tests of contro controls ls and substan substantiv tive e tests tests of  transactions ('igure 13-4 emphasi1es satisfying the transaction+related audit

ob.ectives developed in 3hapters 9 and )" Recall that these ob.ectives focus on the proper functioning of the accounting system" The methodology of designing tests of details of balances ( 'igure 13-6 emphasi1es satisfying the balance+related audit ob.ectives developed in 3hapter  9" The primary focus of these ob.ectives is on the fair presentation of account balances in the financial statements" 13-1! #t is desirable to design tests of details of balances before performing tests

of cont contro rols ls and and subst substan anti tive ve test tests s of trans transac acti tions ons to enab enable le the the audi audito torr to determine if the overall planned evidence is the most efficient and effective in the circumstances" #n order to do this, the auditor must make assumptions about the results of the tests of controls and substantive tests of transactions" 2rdinarily the auditor will assume no significant misstatements or control problems in tests of  controls and substantive tests of transactions unless there is reason to believe otherwise" #f the auditor determines that the tests of controls and substantive tests of transactions results are different from those e!pected, the amount of  testing of details of balances must be altered" 13-1" #f tolerable misstatement is low, and inherent risk and control risk are high,

planned planned tests of details of balances which the auditor must perform will be high"  An increase in tolerable misstatement or a reduction of either inherent risk or  control risk will lead to a reduction in the planned tests of details of balances" 13-2# The nine balance+related audit ob.ectives and related procedures are as follows:

)*+9

0&+&RA AA+C&R&A$&* R&A$&* A*)$ O&C$)(&

,P&C)')C O&C$)(&

A*)$ PROC&*R&

7etail tie+in

#nventory on the inventory summary agrees with the physical count, the e!tensions are correct, and the total is correctly added and agrees with the general ledger"

3heck e!tensions of price times 'uantity on a sample basis, foot the detailed inventory summary, and trace the balance to the general ledger and financial statements"

!istence

#nventory as stated in financial statements actually e!ists"

Trace inventory from final inventory summary to actual inventory and physically count selected items"

3ompleteness

!isting inventory items have been counted and included in the financial statements"

Select items from the physical inventory and trace to the client0s final summary to make sure that all items are included"

 Accuracy

#nventory items included included in the financial statements are stated at the correct amounts"

6erform price tests of inventory by e!amining supporting vendors0 invoices for selected inventory items and reverify price times 'uantity"

3lassification

#nventory as included in the financial statements is properly classified"

3ompare the classification of inventory into raw materials, work in process, and finished goods by comparing the description on physical inventory count tags with the client0s final inventory listing"

3utoff

#nventory cutoff is properly recorded at the balance sheet date"

Trace selected receiving reports several days before and after the balance sheet date to determine whether inventory purchases are recorded in the proper period and related physical inventory counts are included or e!cluded from inventory"

)*+;

Reali1able ble va value

0&+&RA AA+C&R&A$&* A*)$ O&C$)(&

Rights and obligations

#nventory on the financial statements e!cludes unusable items"

,P&C)')C O&C$)(&

#nventory items in the financial statements are owned by the client"

#n'uire of factory employees and management regarding obsolescence of inventory, and e!amine storeroom for evidence of damaged or obsolete inventory"

A*)$ PROC&*R&

Review contracts with suppliers and customers for the possibility of the inclusion of consigned or other non+ owned inventory" inventory"

13-21  Auditors fre'uently consider it desirable to perform audit tests throughout

the year rather than waiting until year+end because of the 36A firm0s difficulty of  scheduling personnel" 7ue to the uneven distribution of the year+end dates of  their clients, there is a shortage of personnel during certain periods of the year  and e!cess available time at other periods" The procedures that are performed at a date prior to year+end are often dependent upon ade'uate internal controls and when the client will have the information available" Additionally, public company auditors must begin their testing of controls earlier in the year to ensure they are able to test a sufficient sample of controls for operating effectiveness" Some controls may only be performed monthly or 'uarterly" Thus, the public company auditor must begin testing early in the year so that there is a sufficient number of  months or 'uarters to test" 6rocedures that may be performed prior to the end of the year are: )" -" *" /" 8" 9"



es> (b (b 3onf 3onfir irma mati tion on of of acco accoun unts ts rec recei eiva vabl ble e bala balanc nces es>> (c 3onf 3onfir irma mati tion on and and rec reconc oncililia iati tion on of acco accoun unts ts payab payable le balances"

ultiple Choi.e Questions 'rom CPA &aminations

)*+?

13-22 a"

(- 

b" (-

c"

(*

d" ()

13-23 a"

(- 

b" (/

c"

()

d" (*

13-24 a"

(/ 

b" (*

)*+@



*is.ussion Questions and Pro7lems

13-25 a8

78

)"

T7 of %

Recalculation

-"

T7 of %

7ocumentation

*"

A6

 Analytical procedures

/"

T of 3

7ocumentation

8"

ST of T

7ocumentation

9"

A6

Recalculation

;"

T7 of %

7ocumentation

?"

T of 3

#n'uiry and observation

@"

T7 of %

3onfirmation

)" T of 3

7ocumentation

))" T of 3

#n'uiry

)*+)

13-26

a8

)          *         +     @        

78

.8

d8

)"

Ac'u c'uisit sition and and 6ayment

Recalculation

Substantive

S T of T

-"

Ac'u c'uisit sition and and 6ayment

7ocumentation

Test of control or Substantive

*"

Ac'u c'uisit sition and and 6ayment

7ocumentation

/"

Sales and 3ollection

#n'uiry

8"

#nventory and Warehousing

9" ;"

e8

98

BA

S T of T

6osting and summari1ation 2ccurrence

Substantive

T 7 of %

BA

3utoff  

Substantive

T 7 of %

BA

Reali1able value

 Analytical procedure

Substantive

A6

BA

Reali1able value

3api 3apita tall Ac'ui c'uisi siti tion on and Repayment

3onfirmation

Substantive

T 7 of %

BA

!istence  Accuracy

Ac'u c'uisit sition and and 6ayment

Recalculation

Substantive

T 7 of %

BA

BA

7etail tie+in

)*+))

13-2 PAP&R A*)$ $RA):

$&,$ O' CO+$RO

a"

Ces Ces

 Account for numbers included in the se'uence se'uence to determine that all documents are there"

b"

Ces Ces

!amine invoices for controller0s approval"

c"

oD

2bserve the cashier preparing the deposit slip and delivering the deposit to the bank"

d"

Ces Ces

!amine sales invoice for initials"

e"

Ces Ces

!amine a sample of bank reconciliations for indication that the controller prepared each one"

f"

o

2bserve whether the supervisor is present and performing his responsibilities at the time employees check in"

13-2 PAP&R A*)$ $RA):

$&,$ O' CO+$RO

a"

Ces Ces

 Account for numbers included in the se'uence se'uence to determine that all documents are there"

b"

Ces Ces

!amine invoices for controller0s approval"

c"

oD

2bserve the cashier preparing the deposit slip and delivering the deposit to the bank"

d"

Ces Ces

!amine sales invoice for initials"

e"

Ces Ces

!amine a sample of bank reconciliations for indication that the controller prepared each one"

f"

o

2bserve whether the supervisor is present and performing his responsibilities at the time employees check in"

g"

oD

2bserve president0s secretary opening mail and prelisting cash receipts" Also e!amine e!istence of prelisting"

D The primary primary concern concern in these these two two items is is the separati separation on of duties duties rather rather than the e!istence of the deposit slip and prelisting" The primary test of control procedure must therefore be observation"

)*+)-

13-2! a8 $RA+,AC$)O+-R&A$&* A*)$ O&C$)(&

D

78

.8

$&,$ O' CO+$RO PROC&*R&

,,$A+$)(& ,,$A+$)(& $&,$

)" !is !isti ting ng ac' ac'ui uisi siti tion on transactions are recorded" (3ompleteness

 Account for numerical se'uence of receiving reports and trace to ac'uisitions .ournal entry"

Reconcile vendor statements to accounts payable listing"

-"

2bserve cash handling procedures and e!amine bank reconciliation to determine if was prepared by an independent person"

6repare a bank reconciliation as of the balance sheet date"

*" Reco Record rded ed tran transa sact ctio ions ns e!ist, recorded transactions are stated at the correct amounts, and transactions are properly classified" (2ccurrence, Accuracy, and 3lassification

!amine invoice packages for initials indicating that review has been performed"

!amine supporting invoices and recheck items checked by the clerk"

/" Reco Record rded ed tran transa sact ctio ions ns e!ist" (2ccurrenceD

!amine invoices for the controller0s initials"

!amine supporting invoices for same information e!amined by the controller"

8" Reco Record rded ed tran transa sact ctio ions ns e!ist" (2ccurrence

!amine invoices for indication of check number and date"

!amine supporting invoices, purchase orders, and receiving reports containing the proper check number and date for each cash disbursement"

!isting cash disbursement transactions are recorded, recorded transactions e!ist, and recorded transactions are stated at the correct amounts" (3ompleteness, 2ccurrence, and  Accuracy"

The The ob.e ob.ect ctiv ives es satis satisfi fied ed depen depend d upon upon what what she she e!am e!amin ines es"" She She migh mightt for  for  e!ample e!amine supporting documents for accuracy and even for account classification" #n that event, those two ob.ectives would be added"

)*+)*

13-2" a/

7/ $RA+,AC$)O+R&A$&* A*)$ O&C$)(&,/

CO+$RO AC$)()

%$)" -" *"

Ade' Ade'ua uate te docu docume ment nts s or records

/"

#nde #ndepe pend nden entt che check cks s on Timing performance #nde #ndepe pend nden entt che check cks s on 6osting and performance summari1ation

8" )          *         +    )         -        

#nde #ndepe pend nden entt che check cks s on  Accuracy performance 6roper authori1ation Accuracy 2ccurrence 3ompleteness

9"

#nde #ndepe pend nden entt che check cks s on 3lassification performance

;"

6roper authori1ation

?"

#nde #ndepe pend nden entt che check cks s on 2ccurrence performance  Accuracy Ade' Ade'ua uate te docu docume ment nts s 2ccurrence or records

@"

)" Separation of duties

2ccurrence

2ccurrence

./

d/

$&,$ O' CO+$RO

PO,,)& ),,$A$&&+$

!amine vendors0 vendors0 invoices for indication of recalculation 7etermine e!istence of approved price lists for ac'uisitions  Account for a numerical numerical se'uence of receiving reports !amine vendors0 invoices for indication of comparison !amine indication of reconciliation reconciliation of the master file and control account !amine vendors0 invoices for indication of internal verification

 A misstatement misstatement in calculation calculation of a vendor0s invoice the auditor will probabl probably y be famili familiar ar with with the client client0s 0s operat operation ions s and will will determine that a reduced control risk is .ustified> the auditor  has appropriate confidence in the competence of personnel and the integrity of management"

)*+)9

;"

All All key key cont contro rols ls rel relat ated ed to to fina financ ncia iall repo report rtin ing g are are test testab able le at at interim periods by the auditor of a public company who must issue an opinion on internal controls over financial reporting" (Some key controls may only be performed by the client as part of the year+end closing process and thus can only be tested by the auditor at year end"

c"

#f Schae Schaeffer deci decide des s to perfo perform rm no addi addittiona ionall test tests of con conttrols rols and and subs ubstant antive tests of tran ransac sactions, depe epending upo upon the circums circumstan tances ces,, she may wish wish to perform perform analyt analytica icall procedu procedures, res, such such as revie reviewi wing ng interi interim m tran transac sacti tion ons s for for reaso reasona nabl blen enes ess s or  trac tracin ing g them them to thei theirr source source,, comp compar arin ing g bala balanc nces es to prev previo ious us periods, or other such procedures, for the remaining period to year+ end"

d"

#f Schaefer is auditing a public company, she must perform sufficient tests of controls to provide her a basis for issuing an opin opinio ion n on the the opera operati ting ng effe effect ctiv iven eness ess of those those contr control ols s over  over  financial reporting" Schaefer&s approach to performing interim tests of controls in August through ovember would be appropriate for  the audit of internal control over financial reporting" Schaefer needs to begin testing early enough in the year to ensure that she can test contr control ols s enou enough gh to prov provid ide e a suff suffic icien ientt basi basis s for for repo report rtin ing g on inte intern rnal al cont control rols s over over fina financ ncia iall repor reporti ting ng"" %eca %ecaus use e some some key controls may only be performed by the client as part of the year+end closing process, Schaefer may have to e!tend her testing beyond ovember since year+end closing controls can only be tested by the auditor at year end"

13-32 a"

The The se'u se'uenc ence e the the audi audito torr shoul should d foll follow ow is: is: *" )" /" -"

Assess control risk" 7ete etermine whether it is cost ost effective to perform tes tests of  controls" 6erform tests of controls" 6erf 6erfor orm m sub subst stan anti tive ve test tests s of of deta detailils s of bala balanc nces es""

)*+);

The only logical se'uences for parts b through e are shown as follows: E F

A

B

G

H

C

D

D

D

 Any other se'uence is not cost effective or incorrect" $or $o r e!ample: ,  A, , 3 would be the se'uence when there is planned reduced assessed control risk and effective results of tests of controls" b"

The The se'uenc se'uence e is , A, F, 7" The The logic logic was was reason reasonab able le"" The audi audito tor  r  believed the internal controls would be effective and it would be cost effe effect ctiv ive e to perf perfor orm m test tests s of cont control rols" s" #n perfo perform rmin ing g the the test tests s of  cont contro rols ls the the audit auditor or concl conclude uded d the the cont contro rols ls were were not effe effect ctiv ive" e" Therefore, e!panded substantive tests of details of balances were needed" c" The se'u se'uen ence ce is , %, , 3" The audi audito torr concl onclu uded ded the inter interna nall controls may be effective, but it was not cost effective to reduce assessed control risk" The auditor should not have performed tests of  controls" #t would have been more cost effective to skip performing tests and instead follow the se'uence , %, 7" d" The The se'uen se'uence ce is $, A, , 3" The logic logic is not reaso reasona nabl ble" e" When When the auditor concluded the controls were not effective he or she should have gone immediately to 7 and performed e!panded substantive tests of details of balances" e" The se'u se'uen ence ce is $, 7" The logi logic c was reas reason onab able le"" The audi audittor  conclu concluded ded that that intern internal al contro controls ls were were not effect effective ive,, theref therefore ore the auditor went directly to substantive tests of details of balances and performed e!panded tests"

)*+)?

13-33 6R237