Question 4

Part I

Describe the audit risk model and the interrelationships of its components. Which components of the audit risk model can be controlled by the auditor?

Part II

The following are common audit procedures for tests of Sales and Collection Cycle.

Each audit procedure is to be considered independently:

1. Account for a numerical sequence of remittance advices and determine whether there is a cross-reference mark for each one, indicating that it has been recorded in the cash receipts journal

2. Examine duplicate sales invoices to determine whether the account classification for sales has been included on the document.

3. Select a sample of customer orders and trace the document to related shipping documents, invoices and the accounts receivable master file for comparison of name, date and amount.

Required:

a. Identify whether each audit procedure is a test of control or a substantive test of transaction.

b. For each of the audit procedure, state which of the six transaction-related audit objective(s) being fulfils.

c. For each test of control in part a, state a substantive test that could be used to determine whether there was a monetary misstatement.