Professional Documents
Culture Documents
Auditing I
Chapter 6 (Internal Control in a Financial Statement Audit) Mr. Freddy Loing
Cook, independent auditor, has been engaged to audit the financial statements of
General Department Stores, a continuing audit client, which is a chain of medium-size
retail stores. General's fiscal year will end on 30 June 2009, and General's management
has asked Cook to issue the auditor's report by 1 August 2009. Cook will not have
sufficient time to perform all the necessary fieldwork in July 2009, but will have time to
perform most of the fieldwork as of an interim date, 30 April 2009.
After the accounts are tested at the interim date, Cook will also perform
substantive procedures covering the transactions of the final two months of the year. This
will be necessary to extend Cook's conclusions to the balance sheet date.
Required:
a. Describe the factors Cook should consider before applying substantive procedures to
General's balance sheet accounts at 30 April 2009.
b. For accounts tested at 30 April 2009, describe how Cook should design the substantive
procedures covering the balances as of 30 June 2009, and the transactions of the final
two months of the year.
Answers
• Account for all inventory tag numbers used and print out a report of
missing or duplicate numbers for follow-up.
• Search for tag numbers noted during the physical inventory observation
as being voided or not used.
• Compare the physical inventory file to the file of test counts and print
out a report of differences for auditor follow-up.
• Combine the quantities for each item appearing on more than one
inventory tag number for comparison to the perpetual file.
• Compare the quantities on the file to the calculated quantity balances on the
perpetual inventory file as of 5 January 2009. (Alternatively, compare the
physical inventory file updated to year-end to the perpetual inventory file.)
• Calculate the quantities and euro amounts of the book-to-physical adjustments
for each item and the total adjustment. Print out a report to reconcile the total
adjustment to the adjustment recorded in the general ledger before year-end.
• Using the calculated book-to-physical adjustments for each item, compare the
quantities and euro amounts of each adjustment to the perpetual inventory file
as of 5 January 2009, and print out a report of differences for follow-up.