7-44 The following situations present the auditor with alternative sources of evidence regarding a

7-44 The following situations present the auditor with alternative sources of evidence regarding a particular assertion:

Required:
a. for each of the following situations, identify the assertions the auditor is most likely testing with procedure.
b.
For each situation, identify which of the two sources presents the most
persuasive evidence and briefly indicate the rationale for your answer.
Sources of audit evidence:
1. Confirming accounts receivable with business organizations vs. confirming receivables with consumers.
2.
Visually inspecting an inventory of electronic components vs.
performing an inventory turnover and sales analysis by products and
product lines.
3. Observing the counting of a client’s year-end
physical inventory vs. confirming the inventory held at an independent
warehouse by requesting a confirmation from the owner of the warehouse.
4.
Confirming a year-end bank balance with the client’s banking
institution vs. reviewing the client’s year-end bank statement vs.
having a cutoff bank statement as of January 20 for all activity from
December 31 to January 20 sent to the auditor.
5. Observing the
client’s inventory composed primarily of sophisticated radar detectors
and similar electronic equipment vs. observing the client’s inventory
composed primarily of sheet metal.
6. Confirming the client’s year
end bank balance with the bank vs. confirming the potential loss due to a
lawsuit with the client’s outside legal counsel.
7. Testing the
client’s estimate warranty liability by obtaining a copy of the clients
spreadsheet used for calculating the liability and determining the
accuracy of the spreadsheet’s logic by entering new data into the
spreadsheet and independently calculating the result vs. developing an
independent spreadsheet and using regression analysis to develop an
independent estimate of the warranty liability using the client sales
and warranty return data
8. Reviewing all payments made to vendors
and suppliers after year-end to determine if they were properly recorded
as accounts payable vs. requesting vendor statements at year end for
all significant vendors from whom the client made purchases during the
year.
9. For a financial institution, testing the organization’s
controls for recording customer savings deposits, including the
existence of an independent department to explore any inquires by
customers vs. confirming year-end savings account balances with
customers.
10. For a financial institution, testing the
organization’s controls for making and recording loans vs. confirming
year-end loan balances directly with customers.