Audit

6-19 a. (2) b. (2) c. (1)

6-20 a. (1) b. (2) c. (1)

6-27 a. Management assertions are implied or expressed representations by management about the classes of transactions and related accounts in the financial statements. SAS 106 identifies five assertions about classes of transactions which are stated in the problem. These assertions are the same for every transaction cycle and account. General transaction-related audit objectives are essentially the same as management assertions, but they are expanded somewhat to help the auditor decide which audit evidence is necessary to satisfy the management assertions. Accuracy and posting and summarization are a subset of the accuracy assertion. Specific transaction-related audit objectives are determined by the auditor for each general transaction-related audit objective. These are done for each transaction cycle to help the auditor determine the specific amount of evidence needed for that cycle to satisfy the general transaction-related audit objectives.

b.

and

c. The easiest way to do this problem is to first identify the general transaction-related audit objectives for each specific transaction-related audit objective. It is then easy to determine the management assertion using Table 6-3 (p. 156 in text) as a guide.

6-27 (continued)

SPECIFIC TRANSACTION-RELATED AUDIT OBJECTIVE b.

MANAGEMENT ASSERTION c.

GENERAL TRANSACTION-RELATED AUDIT OBJECTIVE

a. Recorded cash disbursement transactions are for the amount of goods or services received and are correctly recorded. 3. Accuracy 8. Accuracy

b. Cash disbursement transactions are properly included in the accounts payable master file and are correctly summarized. 3. Accuracy 9. Posting and

summarization

c. Recorded cash disbursements are for goods and services actually received. 1. Occurrence 6. Occurrence

d. Cash disbursement transactions are properly classified. 4. Classification 10. Classification

e. Existing cash disbursement transactions are recorded. 2. Completeness 7. Completeness

f. Cash disbursement transactions are recorded on the correct dates. 5. Cutoff 11. Timing

7-14 The decrease of the current ratio indicates a liquidity problem for Harper Company since the ratio has dropped to a level close to the requirements of the bond indenture. Special care should be exercised by the auditor to determine that the 2.05 ratio is proper since management would be motivated to hide any lower ratio. The auditor should expand procedures to test all current assets for proper cutoff and possible overstatement and to test all current liabilities for proper cutoff and possible understatement.

7-27 a. (2) b. (1) c. (4) d. (4)

7-28 a. (3) b. (3) c. (4) d. (4)

? Discussion Questions And Problems

7-29 a.

1. External 7. Internal 13. Internal

2. Internal