Regina

1. High-risk items are net sales, cost of goods sold, accounts receivable and inventory. Net sales increased, but cost of goods sold decreased. AR turnover went down as sales were increasing. The inventory turnover was slowing down as well.

2. (a) To request the confirmation with Regina and its customers to compare with the accounts and to test the vouch.

(b) Sales return credit accounts receivable and affects inventory. The auditor could valuate the inventory and test the accounts receivable.

3. Golden may place shipping date in by the end of year to credit sales. The auditor could test occurrence and completeness when compare the accounts in these orders.

4. They might not due to the relationship built with Regina. Net sales, accounts receivable and sales should be taken substantive test.

5. The level of trust should be measured during the engagement. The trust should not impact auditors’ professional due diligence. And auditors would not be penalized from its professional work. However, in this case, auditors forgot their responsibility and were blind by so-called trust.

Case 3.1 The Trolley Dodgers

1. The key audit objectives for a clients payroll function are

a. Occurrence and existence,

b. Completeness,

c. Accuracy,

d. Posting & summarization,

e. Presentation and disclosure,

f. Timing and classification.

The objective of completeness requires checking all of the amounts paid to the employees to see if they are correct and paid in full. Auditors should level the control risk on all payroll transaction cycle, which is auditor’s major objective on performing tests of controls. In order to determine the nature, extent, and timing of the year-end substantive tests, auditors need to assess control risk for a transaction cycle to get strong evidences.

A payroll transaction cycle has two key accounts, which are accrued payroll and payroll expenses. Auditors mainly are concerned of these two accounts violating the completeness...