Audit Testing of Various Accounts: Finance Report - University Name

This report provides an in-depth analysis of audit testing procedures for various accounts, including repairs and maintenance, cost of sales, accounts receivable, consultancy fees, superannuation, owner's equity, and wages. The report begins with an introduction to audit testing and analytical review, emphasizing the importance of accurate financial statements. It then delves into preliminary materiality judgments, followed by a detailed examination of each account, outlining the rationale for selection, potential assertions at risk, and recommended audit procedures. The analysis covers both fraud-related risks and qualitative factors impacting account accuracy. Specific procedures include verifying account balances, communicating with customers and consultants, and scrutinizing employee welfare policies. The report highlights the significance of each account in the overall financial picture and provides practical guidance for auditors to ensure the integrity of financial reporting.

Running head: AUDIT TESTING OF VARIOUS ACCOUNTS
Audit Testing of Various Accounts
Student’s Name:
University Name:
Author Note:

1AUDIT TESTING OF VARIOUS ACCOUNTS
Table of Contents
Introduction................................................................................................................................3
Audit Testing..........................................................................................................................3
Analytical review...................................................................................................................3
Preliminary judgment of materiality......................................................................................4
Repairs and Mainter Account.....................................................................................................4
Rationale for selection............................................................................................................4
Assertion and Explanation.....................................................................................................4
Recommended Audit Procedure............................................................................................5
Cost of Sales Account................................................................................................................6
Rationale for selection............................................................................................................6
Assertion and Explanation.....................................................................................................6
Recommended Audit Procedure............................................................................................6
Accounts Receivable Account...................................................................................................7
Rationale for selection............................................................................................................7
Assertion and Explanation.....................................................................................................7
Recommended Audit Procedure............................................................................................7
Consultancy fees Account..........................................................................................................7
Rationale for selection............................................................................................................7
Assertion and Explanation.....................................................................................................8
Recommended Audit Procedure............................................................................................8

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Superannuation Account............................................................................................................8
Rationale for selection............................................................................................................8
Assertion and Explanation.....................................................................................................8
Recommended Audit Procedure............................................................................................9
Owner’s Equity Account............................................................................................................9
Rationale for Selection...........................................................................................................9
Assertion and Explanation.....................................................................................................9
Recommended Audit Procedure............................................................................................9
Wages Account........................................................................................................................10
Rationale for Selection.........................................................................................................10
Assertion and Explanation...................................................................................................10
Recommended Audit Procedure..........................................................................................10
References................................................................................................................................11

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Introduction
Audit Testing
Audit is a crucial part of management of financial statements of a particular
organization. Audit testing of accounts is very important and is done on a periodical basis in
order to check that whether the accounts represent a true and fair view of the financial
position of the company. Preparations of accounting statements require monitoring of
different accounts. This is what is exactly done by audit testing of accounts. A good auditing
done reveals the evidences that seconds the assertion that the financial statements are proper,
accurate and in accordance to the laid down accounting standards (Huber 2016).
Analytical review
The analytical review of the trial balance report is generally prepared with the help of
the account balances that are extracted from the general ledger. If any particular entry is
missing then that can be identified from the trial balance as the total debit and credit balance
will not match, thus the trial balance cannot be closed. The preparation of the trial balance is
an imminent step in preparation of financial statements because it provides a material proof
that the account balances are proper and error free. The steps in analytical review of the trial
balance are generating a trial balance; matching the totals of the debit and credit balances of
the respective trial balance. In case there is any kind of problem in the accounts then
adjusting entries need to be passed. For instance if an expense is wrongly recorded then an
adjusting entry of the same amount representing gain must be passed in order to cancel the
wrongly entered expense entry (Veronica and Bachtiar 2014).The account balances should
also be checked individually in order to make sure that the amounts associated with each of
the accounts are accurate, in case there is any discrepancy then the purpose of that particular
entry must be reviewed and amended, if required. In case of the trial balance provided in the

4AUDIT TESTING OF VARIOUS ACCOUNTS
question, Chamoisee Enterprises Trial Balance shows the debit and credit balances for two
financial years 2015-16 and 2016-17 and appears to be alright (Desai 2015).
Preliminary judgment of materiality
The term preliminary judgment about materiality refers to the maximized amount that
is believed by the auditor that even if these statement of accounts are misstated then also it
would not affect the decision making process or the true and fair view of the accounts as
such. The materiality is mostly allocated to balance sheet and not income statement accounts
because of the double-entry book keeping system which imposes a similar effect both on the
income statements and balance sheet (Barndt, Fuller and Flynn 2016). There is also an
allotted amount of allowed misstatement under which any amount of materiality is allowed
because some accounts may be understated and again some accounts may be overstated that
leads to a net total amount less than the tolerable amount. Materiality is an important tool in
the hands of the auditor and can be used efficiently in order to assess the quality of the
accounts prepared (Eilifsen, Hamilton and Messier Jr 2017).
Repairs and Mainter Account
Rationale for selection
After analytical review of the trial balance and the execution of materiality assessment
the account of Repairs and Mainter is selected. This is because the total debit balance of the
account for the financial year 2015-16 is $5050 and the debit balance for the financial year
2016-17 is $960. The percentage change in the account balance is 81%.
Assertion and Explanation
This account may be at risk of fraud because there has been a huge change in the
account balance, precisely of $4090. The change may be due to genuine reasons but as no

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further information is provided as to why there is such a disparity in the balances of two
consecutive financial years, it may be assumed that the statement has been misstated. This
has been done to show increased profits of the firm for the current financial year by
decreasing the actual amount of expenses incurred on repairs and maintenance so as to lure
the shareholders and investors. This might also be the case that the fraud was committed in
the last financial year that is 2015-16. The balance of the repair and maintenance account
may be increased deliberately so as to increase the expenditure amount so that the firm can
evade extra tax which it has to pay on the basis of the revenue earned (Gaber and Lusk
2015).
Recommended Audit Procedure
The recommended audit procedure for treating accounts with fraud risk is that the
auditor should monitor and assess the relevant information that is collected from the risk
based auditing procedures and confirm whether one or more than one fraud related risk
factors are present or not and should be listed down and considered while identifying and
assessing fraud risks. Factors that help in identifying risks associated with fraudulent
activities are events that tend to indicate a monetary incentive or pressure that ultimately
leads to fraud; a loophole that is enough for initiating the fraud, or a perspective or attitude
that is enough to justify the unethical action. Needless to say fraud related risks do not
mandatorily suggest that a fraudulent activity is being carried out in the firm but the existence
of even a single indicator is enough to take preventions against fraud.

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Cost of Sales Account
Rationale for selection
The account that requires audit attention for qualitative reasons other than fraud
related risks is Cost of Sales Account. This account is selected because this is one of the most
important accounts, that is prepared in order to figure out the total manufacturing costs.
Assertion and Explanation
The Cost of Sales Account is selected because this account is directly linked with the
cost of manufacturing the goods. Cost of goods sold account generally includes all the direct
costs associated with the goods producedby a company along with the direct labor costs. The
primary purpose of a business is to incur profits. The net profit that is incurred from business
cannot be exactly calculated if enough attention is not given on the cost of goods sold. This
is because the cost of goods sold account is a clear indicator of the fact that the newest
strategies and plans implemented to maximize the profit is working or not. The cost of goods
sold also reveals the areas of resourcefulness in the business. In simpler terms, the
components of manufacture that attribute most to profits is indicated also by the cost of sales
account. Therefore the Cost of Sales account should be audited with utmost care (Bernard
2016).
Recommended Audit Procedure
The recommended audit procedure for auditing the cost of sales account revolves
around a lot of procedures like authorizing the purchase of raw materials, accurate recording
of inventory costs, inventory tests. The auditor should keep a keen eye as to how a particular
category of goods are prepared, costs incurred and the related statements recorded.

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Accounts Receivable Account
Rationale for selection
The next account selected for audit testing is accounts receivable account. This
account represents the receivables of a particular firm. This account has a direct link with the
sales account as increase in sales will definitely increase the receivables.
Assertion and Explanation
The Accounts Receivable account is selected because it is one of the most important
accounts that represent the future receiving of a firm in the form of credit sales. Generally the
accounts receivable account is treated as an asset because it represents future income. But in
case of customers who are not able to pay in time, this appears to be a loss for the company
and the amount is transferred to the bad debts account. Thus the accounts receivables account
must be audited with due care and importance (Hribar, Kravet and Wilson 2014).
Recommended Audit Procedure
The recommended audit procedure for auditing the accounts receivables account is
that the auditor should test whether the balance in the subsidiary ledger is matching with the
balance in the general ledger. The auditor should also communicate with the various
customers and confirm the exceptions. He should also confirm the same on the part of the
banks and find the reasonability behind discounted or unbilled receivables.
Consultancy fees Account
Rationale for selection
The Consultancy fees account is selected because it is an expense account and can be
materially misstated. The balance of this particular account is $57000 for the financial year
2015-16 and $39500 for the financial year 2016-17.

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Assertion and Explanation
The Consultancy fees account is selected because the expenditure for consultation
incurred by the firm was $57000 previously and $39500 for the next financial year. Now it is
apparent that the firm had expensed less in the financial year of 2016-17. This may be a
genuine occurrence or may be done purposely in order to increase the profit and lure the
shareholders and investors. The materiality of misstatement is an issue of concern and may be
applied by the company in order to show increased revenues of the firm (Alexeyeva and
Svanström 2015).
Recommended Audit Procedure
The recommended audit procedure for auditing the consultancy fees account is that
the auditor should crucially check the recorded statements and transactions incurred between
the firm and the consulting body. The auditor should also communicate with the consultancy,
in order to make sure that all proceedings have been carried out correctly and then the
chances of misstatement should be cut out.
Superannuation Account
Rationale for selection
The Superannuation account is selected next because as per the set standards every
employer has to keep away a certain percentage of the employee’s salary and even contribute
a certain percentage from the part of the employer for employee benefit purposes. The
balance for the year 2015-16 is $4770 and $2373 for the year 2016-17.
Assertion and Explanation
The superannuation account is selected because it is the duty of the auditor to be
highly vigilant whether the employee welfare policies of a particular company are properly

9AUDIT TESTING OF VARIOUS ACCOUNTS
implemented. In case of Chamoisee Enterprises the amount has decreased from $4770 to
$2373. This implies that either the company has contributed less to the fund of employees or
it there has been a reduction in the number of employees. The auditor should keep these facts
in mind and execute proper investigations (Boone 2017).
Recommended Audit Procedure
The recommended audit procedure would be that the auditor should be very strict
with employee welfare policies and should take enough care as to why the contribution of the
company in relation to this has decreased. The auditor should carry out a thorough
investigation.
Owner’s Equity Account
Rationale for Selection
The owner’s equity account is selected because this account represents the owner’s
investment in the firm excluding the withdrawals made by the owner, added with the net
income since the beginning of the venture.
Assertion and Explanation
As observed in the provided trial balance owner’s equity balance for the financial year
2015-16 is $135683 and for the financial year 2016-17 is $181845. It is apparent that the
owner’s equity account balance has increased which is a healthy indication, but also auditing
of this account is equally important as the risk of material misstatement is very high in case
of these kinds of accounts (Needles, Powers and Crosson 2013).
Recommended Audit Procedure
The recommended audit procedure that the auditor should follow is that he should
consider past profits as recorded in the previous accounting statements and check whether the

10AUDIT TESTING OF VARIOUS ACCOUNTS
net profits has been added properly. He should also check whether the profit earned is
properly distributed among the owners in accordance with the accounting ratios.
Wages Account
Rationale for Selection
The Wages account is selected because of the reason to check whether the domain of
direct labor is properly maintained by the company and in accordance to the set standards by
the labor association.
Assertion and Explanation
As observed in the trial balance, the wages account balance in the financial year of
2015-16 is $53000 and for the financial year of 2016-17 is $32000. The only reason for this
account being selected is that the auditor should keep a vigilant eye towards the labor welfare
policies and whether the policies are being properly implemented or not (Ionescu 2016).
Recommended Audit Procedure
The recommended audit procedure that the auditor should follow is that he should
make sure that the labor welfare policies are properly implemented and the standardized rules
set out by the labor association are being followed. The wages account balance has also
decreased from $53000 to $32000 which is also an issue of concern and should be looked
into.

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References
Alexeyeva, I. and Svanström, T., 2015. The impact of the global financial crisis on audit and
non-audit fees: Evidence from Sweden. Managerial Auditing Journal, 30(4/5), pp.302-323.
Barndt, R.J., Fuller, L.R. and Flynn, K.E., 2016. Teaching Inherent Risk and Tolerable
Misstatement in Auditing: A Modified Delphi Method as a Teaching Tool. In Advances in
Accounting Education: Teaching and Curriculum Innovations (pp. 125-140). Emerald Group
Publishing Limited.
Bernard, D., 2016. Is the risk of product market predation a cost of disclosure?. Journal of
Accounting and Economics, 62(2), pp.305-325.
Boone, J.P., Khurana, I.K., Raman, K.K., Chen, L.H., Chung, H.H.S., Peters, G.F., Wynn,
J.P.J., Chen, Y., Knechel, W.R., Marisetty, V.B. and Truong, C., 2017. Auditing: A Journal
of Practice & Theory A Publication of the Auditing Section of the American Accounting
Association.
Desai, N., 2015. The Effects of Group Brainstorming on the Auditor’s Search for Potential
Misstatements and Assessment of Fraud Risk in the Presence of Pressures and Opportunities.
Eilifsen, A., Hamilton, E.L. and Messier Jr, W.F., 2017. The Importance of Quantifying
Uncertainty: Examining the Effect of Audit Materiality and Sensitivity Analysis Disclosures
on Investors’ Judgments and Decisions.
Gaber, M. and Lusk, E., 2015. Account screening: Rationalizing the extended procedures
decision in the audit context. EXCEL International Journal of Multidisciplinary Management
Studies, 5(9), pp.1-20.