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Homework answers / question archive / 1)The detailed statement of comprehensive income of Shox (Pty) Ltd for year end 31 March 2020 contains the following account headings: Salaries R10 186 241 Your fellow trainee (who thinks he knows everything!) tells you that the assertions pertaining to this account heading are as follows: Valuation: salaries are presented at the gross amount less deductions Existence: the salary earners to whom the R10 186 241 was paid all existed at financial position date
1)The detailed statement of comprehensive income of Shox (Pty) Ltd for year end 31 March 2020 contains the following account headings: Salaries R10 186 241 Your fellow trainee (who thinks he knows everything!) tells you that the assertions pertaining to this account heading are as follows: Valuation: salaries are presented at the gross amount less deductions Existence: the salary earners to whom the R10 186 241 was paid all existed at financial position date. Completeness: all salaries paid by the company in respect of the financial year are included in the amount Obligation: the company has an obligation to pay the amounts making up the total of R10 186 241. Disclosure: the names of all salary earners have been disclosed in the financial statements. 1 Required: Discuss whether you agree with your fellow trainee. Justify your answer by explaining each assertion identified and providing the correct alternative.
2)Jett Bungle performed the following procedures during the audit of Dalto (Pty) Ltd, a large manufacturing company. 1. During the inventory count he test counted a sample of inventory items selected from the clients inventory list and compared the quantities counted to those recorded on the client's inventory list. 2. He arranged for the financial manager to obtain a positive confirmation from Dalto (Pty) Ltd's major overseas debtor. The debtor sent an email confirming the amount owed to the financial manager who forwarded it to Jett Bungle. 3. He obtained a bank confirmation relating to the client's bank account (overdraft) direct from the bank. On previous occasions the confirmation from the bank had been incorrect but only by small amounts. 4. He inspected a sample of Dalto (Ply) Ltd's delivery notes for the signature of Dalto (Ply) Ltd's despatch clerk indicating that the goods had been checked against the internal sales order, as well as the signature of the customer's goods received clerk acknowledging receipt of the goods delivered. 5. He observed the offloading and receiving of deliveries by suppliers, to determine whether the goods were counted by Dalto (Pty) Ltd's receiving clerks. Required: Classify and explain each of the above in terms of its source of audit evidence.
3)Arthur Industries entered into the following transactions during the month of June. A. Purchased supplies for $4,100 cash. B. Paid $4,480 for salaries and wages for the month of June. C. Paid $510 in advance for July rent. D. Provided $13,100 in services on account E. Paid $1,500 on accounts payable. F. Received $190 from customers as deposits for future services. G. Received a bill for $360 from the plumber who repaired a broken pipe in the restrooms, but will not pay the bill until July H. Purchased equipment for cash of $780. For each of the transactions, prepare journal entries. (If no entry is required for a transaction/event, select "No Journal Ent Required" in the first account field.) View transaction list Journal entry worksheet Record the entry for $190 cash received from customers as deposits for future pet sitting services. Note: Enter debits before credits. Transaction General Journal Debit Credit F
Journal entry worksheet Record the entry for bill of $360 for plumber services for repairing pipe during the month. The bill will not be paid until July Note: Enter debits before credits. Transaction General Journal Debit Credit G.
Journal entry worksheet.
1)Dear Student,
I tried to make you clear the concept: Please click on like.
Valuation: Salaries are presented at Gross amount as salary expense. Deductions are credited in form of tax, loan repayment etc.
Existence: Salary earners will not exist at financial position date as salary has been paid on or before financial position date.
Completeness: Yes. Salary is an expense to be presented for complete accounting year as statement of income is prepared on accrual basis. So whether salary paid or not will be presented for complete accounting year.
Obligation: If salary has not been paid then it shall be shown as liability mainly for last month. If salary has been paid then there is no liability / obligation. As per description in Existence salary has been paid so there is no liability / obligation.
Disclosure: Names of salary earners or employees are never shown in Financial Statements whether salary has been paid or it is due at financial position date. Names of salary earners are created and journal entries are passed. Total of salary earners is presented in Financial Position as "Salaries Payable" if salary has not been paid.
2)
External Source Of Evidence
This are the evidences which the auditor is obtained from outside of the organisation of the client. Normally as the auditor obtains this evidences from outside organisation so the trustworthiness of these evidences are high.
Example - Confirmation of balance from the bank , Confirmation of balance from the debtors.
Internal Sources Of Evidence
The Internal Sources of Eviences are the evidences which the auditor get within the organisation. Evidences of this type is less trustworthy because it is within the organisation. This evidences involves some degree of risk cause this evidences can be manipulated.
Example - Inspection of documents.
| Sl No. | Source Of Audit Evidence | Explanation | |
| 1) | Physical Examination - Internal Source |
In this case the auditor physically examined the stocks and as well as checked it with the clients stock register. By physical verification of the stock the auditor wants to ensure that the stocks are in good and saleable condition. For this he test checked the stocks of the organisation. The auditor also cross checked the stocks in hand with the stock register to ensure that every stock in the hand is recorded properly or not in the stock register. Whenever any stock is purchased it must have to be recorded in the stock register. Same process must have to be followed in the case of issue or sale of stocks. At the end the stock register shows the balance of stocks in hand. This balance in the stock register and the stocks counted in the physical counting must have to be matched. Thats why the auditor cross checked the physical stock with the stock register. Also, the auditor wants to know if there is any stock pilferred or not and as well as wheather the internal control regarding the stock is working properly or not. It also helps the auditor to understand wheather any modification is needed or not for internal control of stocks. |
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| 2) | Third Party Confirmation - External Source |
In this case while checking the accounts receivable the auditor asked for a confirmation letter from one of the major debtor in the overseas and the debtor confirmed the balance through email. By doing this process the auditor wants to know the following points (a) Is the debtor balace showing in the financial statement is true and fair or not ? He wants to ensure that the debtor balance is not inflated in the financial statements. (b) The auditor also wants to know that is there any requirement of provision for bad debts or not. He wants to know that how much money owed from the debtors is good. |
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| 3) | Third Party Confirmation - External Source |
In this case the auditor received a confirmation letter from the bank about the balance of money deposited in the bank acount. The auditor wants to ensure that the bank balance showing in the books of the company is not inflated and its true and fair in every aspect. Thats why he confirmed the balance from the bank. Although, in the previous occasions it was found that the confirmation of the bank were wrong by some small amounts. So, some risk is involved in this audit evidance. The auditor has to judge the degree of risk involved in this evidence and he has to decide wheather he will rely on this audit evidence or not. Normally as the discrepancy is for some small amount so the auditor can rely on this evidence. But again he has to keep in mind that there is some risk involved with the audit evidence. |
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| (c) | Inspection of Document - Internal Source |
In this case the auditor checked a sample note which contains the signature of dispatch clecrk and as well as the signature of customers goods receiving clerk. By doing this the auditor wants to ensure that the exact number of goods has been delivered by the client for which the payment will be receivable. This will ensure the auditor that no excess amount of goods has been delivered by the client wheather by error or due to fraud. This notes also contains the signature of the goods receive clerk for which the trustworthiness of the evidence is increased. Cause there is also an external confirmation attached. |
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| (e) | Physical Examination - Internal Source |
In this case the auditor physically examined the offloading and receiving deliveries. By this approach the auditor wants to know the following - (a) actual number of goods received by the client which it ordered or not. Wheather the company receive lesser amount of goods or not. (b) He also wants to know the internal control while any goods is received by the company. |
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