My main goal is that you become familiar with assertions and see how the auditor choose audit procedures. Don’t think that auditor will test everything with the same weight, it is more strategic than that. If he/she considers that the manager is being pressured to hide debts, the “completeness” of debts will be considered more important than their “existence” and tests will be designed accordingly.
[1] With double-entry accounting, you can always identify a second account. Audit procedures aim at a precise account or class of transactions though.
Early February: the auditor started the process by making sure that amounts presented in the FS correspond to the balances in the General Ledger as of December 31 and, as a second step, that these balances correspond to totals of journals, subledgers, lists, etc. that give the details of the accounts. There was no error and, so, the auditor can use these documents for testing.
1) Draw a sample of shipping documents and examine each one to make sure that a duplicate sales invoice[1] is attached
2) Draw a sample of duplicate sales invoices and examine each one to make sure that a shipping document is attached
3) Obtain an aging of accounts receivables and compare with manager’s estimation of the Allowance for doubtful accounts
4) Draw a sample of receiving reports and compare dates with suppliers’ invoices and the acquisitions journal
5) Select a sample of accounts receivable balances from the accounts receivable subledger and mail a letter to each selected customer asking them to confirm the balance
6) Obtain the bank statement for January, select a sample of payments made to suppliers, trace suppliers’ invoices and compare to individual accounts payable
7) Obtain the invoice for municipal taxes and redo calculation of Prepaid expenses
8) Obtain the list of suppliers that the entity normally does business with, identify the ones with a zero balance on year-end and mail a letter asking for a confirmation
9) Visit the client’s warehouse, select a few items from the shelves and check if they appear on the inventory list
10) Visit the client’s warehouse, select a few items from the inventory list and check if they are on the shelves
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