Examine the tests of controls and substantive tests of transactions results, including the sampling application in Case 18-30 (pp. 647–648), for Ward Publishing Company. Assume that you have already reached several conclusions.
674Part 4 / APPLICATION OF THE AUDIT PROCESS TO OTHER CYCLES
1. Your tests of details of balances for accounts payable are completed, and you found
no exceptions.
2. Acceptable audit risk for property, plant, and equipment and all expenses is high.
3. Inherent risk for property, plant, and equipment is high because in the current year,
the client has acquired a material amount of new and used printing equipment and has traded in older equipment. Some of the new equipment was ineffective and returned; an allowance was received on others. Inherent risk for expense accounts is low.
4. New computer equipment and some printing equipment are being leased. The client has never leased equipment before.
5. Substantive analytical procedures for property, plant, and equipment are inconclu-
sive because of the large increases in acquisition and disposal activity.
6. Substantive analytical procedures show that repairs, maintenance, and small tools expenses have increased materially, both in absolute terms and as a percentage of sales.
Two other expenses have also materially increased, and one has materially decreased.
7. In examining the sample for tests of controls and substantive tests of transactions,
you observe that no sample items included any property, plant, and equipment or
lease transactions.
a. Explain the relationship between the tests of controls and substantive tests of transactions results in Case 18-30 and the audit of property, plant, and equipment and leases.
b. How will the tests of controls and substantive tests of transactions results and your
conclusions (1 through 7) affect your planned tests of details for property, plant, and
equipment and leases? State your conclusions for each balance-related audit objec-
tive. Do not write an audit program.
c. Explain the relationship between the tests of controls and substantive tests of transactions results in Case 18-30 and the audit of expenses.
d. How will the tests of controls and substantive tests of transactions results and your
conclusions (1 through 7) affect your planned tests of details of balances for expenses?
Do not write an audit program.
