Auditing

6-26 (Audit programs and assertions) Assume that you are responsible for developing an audit program for a manufacturing client that sells to over 1,400 customers. You want to ensure your audit program addresses all relevant assertions for sales and accounts receivable. Address the following question in the context of the audit sales and receivables for this manufacturing client.

Required

a. What is the purpose of an audit program?

The purpose of an audit program is to set policies and procedures and document how much evidence is to be collected, what is to be collected, as well as determine and define who is to collect and analyze the data.

b. Explain why auditors translate audit assertions into specific audit objectives when developing an audit program.

Auditors translate audit assertions into specific objectives when developing an audit program to isolate the risks and plan accordingly to their observations. Based on what the financial statement states for revenue, sales, accounts receivable and deposits, the auditors will evaluate the manufacturing client’s business and assertions will be developed. The audit program will include procedures that gather and analyze evidence of payments by the 1,400 customers and the account receivable balances as of today. We would also need to ensure the financial statements are following GAAP and any other standards that apply. Our objectives will be to evaluate the existence, completeness, rights and obligations, valuation or allocation, and the presentation and disclosure of these accounts in the financial statements provided and from the data collected.

c. If you are auditing the existence and occurrence assertion, what specific audit objectives should be accomplished by developing an audit program? Explain the purpose of each audit objective.

Auditing the existence and occurrence assertion should contain three auditing objectives: occurrence, existence, and cutoff (Boynton & Johnson, 2006)....