What is the purpose of tests of controls? Identify specific accounts on the financial statements that are affected by performing tests of controls for the acquisition and payment cycle.

What is the purpose of risk assessment procedures, and how do they differ from the four other types of audit tests?
13-2 (OBJECTIVE 13-1) What is the purpose of tests of controls? Identify specific accounts on the financial statements that are affected by performing tests of controls for the acquisition and payment cycle.
13-3 (OBJECTIVE 13-1) Distinguish between a test of control and a substantive test of transactions. Give two examples of each.
13-4 (OBJECTIVES 13-1, 13-3) State a test of control audit procedure to test the effectiveness of the following control: Approved wage rates are used in calculating employees’ earnings.
State a substantive test of transactions audit procedure to determine whether approved wage rates are actually used in calculating employees’ earnings.
13-5 (OBJECTIVE 13-1) A considerable portion of the tests of controls and substantive tests of transactions are performed simultaneously as a matter of audit convenience. But the substantive tests of transactions procedures and sample size, in part, depend on the results of the tests of controls. How can the auditor resolve this apparent inconsistency?
13-6 (OBJECTIVE 13-1) Distinguish between substantive tests of transactions and tests of details of balances. Give one example of each for the acquisition and payment cycle.
13-7 (OBJECTIVES 13-1, 13-2) Explain how the calculation and comparison to previous years of the gross margin percentage and the ratio of accounts receivable to sales are related to the confirmation of accounts receivable and other tests of the accuracy of accounts receivable.
13-8 (OBJECTIVES 13-2, 13-4) Evaluate the following statement: “Tests of sales and cash receipts transactions are such an essential part of every audit that I like to perform them as near the end of the audit as possible. By that time I have a fairly good understanding of the client’s business and its internal controls because confirmations, cutoff tests, and other procedures have already been completed.”
13-9 (OBJECTIVE 13-2) The auditor of Ferguson’s, Inc., identified two internal controls in the sales and collection cycle for testing. In the first control, the computer verifies that a planned sale on account will not exceed the customer’s credit limit entered in the accounts receivable master file. In the second control, the accounts receivable clerk matches bills of lading, sales invoices, and customer orders before recording in the sales journal. Describe how the presence of general controls over software programs and master file changes affects the extent of audit testing of each of these two internal controls.

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