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Substantive Audit Procedures
10.16 Substantive Tests – Analytical Procedures, Balances and Transactions. Substantive tests include (1) tests of the details of transactions, (2) tests of the details of balances, and (3) analytical procedures. Listed below are several specific audit procedures. Identify the type of substantive test – 1, 2, or 3.
A. Compare recorded travel expense with the budget. B. Vouch entries in the check register to paid checks. C. Recompute accrued interest payable.
D. Calculate inventory turnover ratios by product and compare with prior periods. E. Reconcile the year-end bank account.
F. Discuss uncollectible accounts with the credit manager. G. Count office supplies on hand at year-end.
H. Vouch entries in the sales journal to sales invoices.
I. Comparison of recorded amount of major disbursements with appropriate invoices J. Comparison of recorded amount of major disbursements with budgeted amounts K. Comparison of returned confirmation forms with individual accounts
[Adapted from Carmichael et al ., 1996, Auditing Concepts and Methods , McGraw Hill, New York.]
10.17 Tests of Balances. Your client is the Nicholas van Myra Central, a shopping center with
30 store tenants. All leases with the store tenants provide for a fixed rent plus a percentage of sales, net of sales taxes, in excess of a fixed dollar amount computed on an annual basis. Each lease also provides that the landlord may engage a Registeraccountant or Accountant-Administratieconsulent to audit all records of the tenant for assurance that sales are being properly reported to the landlord.
You have been requested by your client to audit the records of the JaiLai Chinese Ind. Restaurant to determine that the sales, totaling i725,000 for the year ended December
31, 20X4, have been properly reported to the landlord. The restaurant and the shopping center entered into a five-year lease on January 1, 20X4. The JaiLai offers only table
service. No liquor is served. During meal times there are four or five waitresses in attendance, who prepare handwritten prenumbered restaurant checks for the customers. Payment is made at a cash register, staffed by the proprietor, as the customer leaves. All sales are for cash.
The proprietor also is the bookkeeper. Complete files are kept of restaurant checks and cash register tapes. A daily sales book and general ledger are also maintained.
List the auditing procedures that you would employ to test the annual sales of the JaiLai Chinese Ind. Restaurant. (Disregard vending machine sales and counter sales of chewing gum and candy, and concentrate on the overall checks that would be appropriate.)
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