Comprehensive Questions 11-21 (Assessing Control Risk) An auditor is required to obtain a sufficient understanding of each of the components

Comprehensive Questions 11-21 (Assessing Control Risk) An auditor is required to obtain a sufficient understanding of each of the components of an entity’s system of internal control to plan the audit of the entity’s financial statements and to assess control risk for the assertions embodied in the account balance, transaction class, and disclosure components of the financial statements.

Required
a. Explain the reasons an auditor may assess control risk at the maximum level for one or more assertions embodied in an account balance.
b. What must an auditor do to support assessing control risk at less than the maximum level when the auditor has determined that controls have been placed in operation?
c. What should an auditor consider when seeking a further reduction in the planned assessed level of control risk?
d. What are an auditor’s documentation requirements concerning an entity’s system of internal control and the assessed level of control risk?
AICPA (adapted)

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Tests of account balances are intended to obtain audit evidence about the fairness of the inventory accounts

Problem 14-31 Tests of account balances are intended to obtain audit evidence about the fairness of the inventory accounts or, alternatively, identify material misstatements in the amounts presented. Audit procedures can only be selected after the auditor determines specific audit objectives related to management assertions.

Management Assertions
1. Existence or occurrence
2. Completeness
3. Rights and obligations
4. Valuation or allocation
5. Presentation and disclosure

Required: For each audit procedure below, identify the related management assertion(s) that the audit procedure tests and explain the audit objective of the procedure.
(a) Trace totals of inventory files to the general ledger, including proper classification as raw materials, WIP, or finished goods.
(b) Test additions to inventory by selecting a sample of recorded purchases from the inventory records and examining supporting documents.
(c) Review consignment contracts and scan inventory records for inclusion of amounts for any consigned items not owned.
(c) Reperform calculations supporting decisions about write-downs or write-offs of inventory and trace any adjustment amounts to the inventory records.
(d) Using computer-assisted auditing techniques reperform calculations testing mathematical accuracy, including totals extensions of price and quantity and unit or batch aggregations; recalculation is based on appropriate application of the client costing method (FIFO, LIFO, weighted average, specific identification, etc.).


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