Group 5: Audit Procedures

The tool does not decide the purpose Alder Ceramics' team inspects three sets of records: new sales terms to understand possible reporting risks; approval records to evaluate whether a review control operated; and invoices/dispatch dates to detect incorrect revenue cut-off. A trainee calls all three tests of controls merely because the tool is inspection. Required: Classify the three purposes, explain the context principle and distinguish further procedures. (5 marks)

Watching the process is not repeating it Bracken Foods' auditor watches staff count selected inventory at one time. The auditor does not independently perform the count procedure. Management says the observation proves the same process worked at every other date and cannot affect staff behaviour. Required: Identify the technique and explain its two stated limitations. (3 marks)

A warehouse visit does not settle every assertion Copper Machines' auditor physically inspects a machine and examines a financial-instrument certificate and executed customer contract. The manager says seeing assets proves ownership and value, while reading a contract proves all revenue is correct. No supporting ownership, valuation or complete transaction evidence is supplied. Required: Explain what each inspection may support, its assertion limits and how to respond to the manager's claims. (5 marks)

Arithmetic is not the same as independent execution Dune Services' auditor first checks multiplication and totals on a payroll schedule, then independently performs the entity's reconciliation procedure between the schedule and the ledger. A trainee labels both observation. Required: Identify both techniques and explain why observation is different. (3 marks)

Design a five-action procedure plan Elder Lighting supplies five concerns: A. New customer contracts contain unfamiliar delivery/return terms. B. Staff count inventory while the auditor is present; performance at other dates is unknown. C. A depreciation schedule may have incorrect multiplications and totals. D. Staff have prepared a receivables ageing procedure which the auditor wants independently to execute. E. The finance manager gives an oral explanation inconsistent with dispatch records. The audit manager wants proposed techniques and their evidence boundaries, not a statement all work has already been done. Required: (a) For each concern, specify the technique, proposed case-specific work and what it does not establish by itself. (8 marks, A-E weighted 1.5/1.5/1.5/1.5/2) (b) Explain why technique labels do not alone determine audit purpose and how additional work follows from unresolved evidence. (2 marks)

An oral answer changes what needs investigation Fennel Transport's finance head says every receipt was posted before closing. Dispatch staff describe delayed batches and records indicate postings after closing. The auditor plans to retain only the finance answer because inquiry always proves absence of material error. No cut-off conclusion has been reached. Required: Explain inquiry's scope, response evaluation, contradiction handling, additional work and the sufficiency limit. (5 marks)

Evidence may disappear before year-end fieldwork Ginkgo Parts keeps transaction details electronically and overwrites them after a short period without backups. The auditor plans to inspect them months later merely because that is last year's timetable. Required: Explain the procedure-design implication and two appropriate planning responses. (3 marks)

One inspection cannot answer two opposite questions Hearth Components' auditor wants to test whether recorded payables are overstated and whether material liabilities have been omitted. The team proposes inspecting only the recorded payables list for both purposes, ignoring unmatched receipts, unpaid invoices and later disbursements. Required: Explain the two testing directions, relevant unrecorded-liability information and the limit of a fixed list. (5 marks)

Three objectives require three designed conditions Indigo Glass designs work on a manager's approval control, recorded sales cut-off and a risk-assessment review of changed transaction terms. The file uses the same test condition, invoice exists, for all three objectives. No results have been obtained. Required: State relevant conditions for the control and substantive tests, classify the third objective and explain why invoice existence alone is inadequate. (5 marks)

Repair an overclaimed procedure summary Jasmine Tools' draft summary contains five statements: A. We inspected one tangible asset, so ownership and valuation are proved. B. We watched staff process an exception on Tuesday, so performance at all dates is proved. C. We recalculated a provision schedule, so all assumptions are reasonable. D. We independently performed the entity's ageing procedure; this is only observation. E. Management orally denied every error, so further procedures are unnecessary. The stated activities occurred, but no other supporting evidence is supplied. Required: For each statement, identify the actual technique or supported evidence, correct the specific overclaim and explain what remains to be addressed. (2 marks each; 10 total)

Corroborating an intention when direct support is limited Kite Manufacturing says it intends to retain a production line. There is limited direct evidence of a future intention. Management previously announced similar plans but later abandoned some, gives a current operating reason and has uncertain resources to carry the plan out. A trainee says limited direct support means inquiry is either conclusive or useless. Required: Explain the corroboration approach using three distinct areas and correct the two extremes. (5 marks)

Previous work is not automatically current work Lark Components' prior-year audit file includes relevant evidence about a continuing arrangement. The current team wants to reuse it without checking amendments or current circumstances. A trainee says old evidence can never be useful. Required: Explain the conditional use and necessary current work. (3 marks)

Confirmation can address terms, not only balances Moss Equipment's auditor needs evidence about an agreement's terms and whether an undisclosed side agreement exists. Management offers a summary and says external confirmations are restricted to outstanding account balances. No confirming-party response has been received. Required: Explain the technique, its response form, two relevant possible enquiries and the evidence boundary. (5 marks)

Detail testing and substantive analytics are not synonyms Nori Services proposes two procedures to detect material reporting errors: checking selected transaction records against the appropriate recorded amounts and periods; and evaluating revenue against a plausible relationship between financial results and service volumes, investigating significant deviations. A third procedure examines whether a review control operated. No results are available. Required: Classify the three purposes, explain the substantive objective and identify the basic analytical investigation requirement. (5 marks)

Plan work around four different gaps Osprey Hire's manager gives the auditor four issues: A. Evidence from a prior audit concerns continuing contract terms, but possible amendments have not been checked. B. Management's intention to retain an asset has limited direct support; earlier intentions were not always implemented and current funding is uncertain. C. The auditor needs direct third-party information about agreement modifications and possible side conditions, not merely an outstanding balance. D. Some source records will be overwritten without backups before the planned audit visit. The team proposes copying last year's file, accepting the intent orally, asking management to write a confirmation and waiting until the usual visit date. Required: (a) For each issue, explain the problem and propose distinct relevant procedure work. (2 marks each; 8 total) (b) State two evidence/conclusion boundaries applying across the plan. (2 marks)

One sample, two objectives Plover Textiles inspects an invoice both for approval evidence and whether its amount was correctly recorded. The junior says using one document makes the work one indivisible test of controls. Required: Distinguish the two objectives and what separate results must address. (3 marks)

Evidence about a signed lease and a machine Quail Studios' auditor inspects a leased camera and reads its executed lease. The camera is present, but the lease includes restrictions and a different legal owner. The assistant proposes recording camera present, therefore owned outright and correctly valued. Required: Explain two inspection uses, the rights distinction, the unresolved valuation question and appropriate further work. (5 marks)

Inquiry reveals an error instead of denying it Reed Services' accountant explains that a dispatch batch was posted twice and points to the batch reference. The auditor has not checked records. A trainee says inquiry can never provide useful error evidence. Required: Explain the usefulness, response evaluation and limit. (3 marks)

Independent ageing: do not merely copy the output Sage Rentals' staff have aged receivables using invoice dates and an agreed reference date. The auditor wants independently to execute that procedure. The assistant proposes copying staff's final ageing bands and recomputing only their total, then describing all input dates as verified. Required: Distinguish the proposed work from reperformance and design an applied plan with input/output limits. (5 marks)

Correct a time-and-purpose matrix Teal Medical's manager lists four proposed actions: A. Inspect changed sales contracts now to identify possible risks. B. Watch a supervisor apply a manual review once to understand actual implementation, then call it year-long operation evidence. C. Inspect selected transactions for both required approval and accurate recording, but record only one undifferentiated pass. D. Recalculate a spreadsheet total now, then label all spreadsheet inputs reliable. Required: (a) For each action, explain its actual purpose/technique and correct the specific evidence-design or conclusion problem. (2 marks each; 8 total) (b) Explain two practical safeguards for evaluating the resulting evidence. (2 marks)

A telephone reply is not the defined written response Umbra Retail's auditor speaks with a customer who describes contract terms orally. No written reply is received. The manager calls this a completed external confirmation in the module's defined sense. Required: Classify the information, explain the definition and state the useful next step. (3 marks)

The end of a contract is a condition to test Vireo Transport's customer balance is nil, but the auditor needs information about whether cancellation penalties or side conditions remain. The team says zero balance makes any confirmation pointless. Required: Explain the non-balance objective, design two relevant questions and state response/evidence limits. (5 marks)

A scanned image changes the procedure medium Wren Print destroys paper invoices after scanning, but retains legible images and linked transaction records. The auditor says inspection is impossible because original paper is gone, without considering the electronic information available. Required: Explain inspection's permitted media and the availability/evidence assessment needed. (3 marks)

A historical contract still matters, but amendments may not Xylem Software's prior file contains a multi-year contract. Current service volumes and billing have changed, while management states the underlying terms remain identical. The team wants to reuse both old terms and old volume evidence as if they are equally current. Required: Distinguish the two uses and design current checks, explaining the remaining evidence boundary. (5 marks)

Build a procedure brief for a short evidence window Yellowfin Events keeps booking changes for only two weeks before overwriting them without backups. Management says contracts have no amendments, although event staff mention revised cancellation terms. The auditor also has a prior-year master agreement and wants a direct written customer reply about current modifications. Fieldwork is planned after the change logs expire. Required: (a) Address retention/timing, actual terms and inconsistent inquiry, prior evidence's continuing relevance, and the proposed third-party response. (2 marks each; 8 total) (b) Explain two boundaries preventing overclaimed conclusions. (2 marks)

Inspection of authorisation is not a substantive total Zebra Media's team reads approval records solely to assess the operation of a purchasing control. It has not compared recorded expenditure with underlying transactions. The junior says the procedure is substantive solely because the records contain amounts. Required: Classify the objective and explain the technique/purpose distinction and remaining limit. (3 marks)

Correct arithmetic, inconsistent output Apricot Labs' auditor recalculates a schedule and finds totals correct. Separately, a study of plausible relationships between revenue and test volumes shows an unusual departure from predicted amounts. Management says the arithmetic result makes investigation unnecessary. Required: Distinguish the techniques/objectives, explain the output limit and propose an appropriate investigation without a detailed analytics-standard calculation. (5 marks)

A review performed on screen is still observable Basil Finance's staff perform a manual review using electronic records while the auditor watches. The auditor does not independently execute the review. The manager says observation cannot exist unless staff use paper. Required: Identify the technique, explain its medium-independent nature and its limit. (3 marks)

A delivery signature answers only part of the test Chervil Furnishings' team inspects signed delivery notes to investigate whether recorded deliveries occurred. It then labels delivery period, sale terms and recorded values all proved, without examining dates, agreements or amounts. Required: Explain the useful evidence, identify three unresolved purposes and correct the broad conclusion. (5 marks)

Separate technique, purpose and conclusion Dill Systems' file contains five draft descriptions: A. Inspect customer agreements to understand new reporting risks, labelled substantive solely because external records are used. B. Compare a transaction's recorded amount to relevant evidence to detect an error, labelled risk assessment solely because the amount is risky. C. Independently execute the entity's reconciliation, labelled inquiry because the auditor first asked staff about it. D. Watch another person's processing and assume the auditor has independently executed it. E. Obtain management's own written summary and describe it as a direct external confirmation. Required: For each, correct the technique/purpose error, explain the specific reason and state the resulting evidence limit. (2 marks each; 10 total)