Relationship of Types of Evidence to Audit

Objectives

INFORMATION CONFIRMED

Assets

Cash in bank

Accounts receivable

Notes Receivable

Inventory out of consignment

Inventory held in public warehouse

Cash surrender value of life insurance

Liabilities

Accounts payable

Notes payable

Advances from customers

Mortgage payable

Bonds payable

CONFIRMATION OBTAINED FROM

Bank

Customer

Maker

Consignee

Public warehouse

Insurance company

Creditor/Supplier

Lender

Customer

Mortgagor

Issuer

INFORMATION CONFIRMED

Owners’ Equity

Shares outstanding

Other information

Insurance coverage

Contingent liabilities

Bond indenture agreement

Collateral held by the creditors

CONFIRMATION OBTAINED FROM

Registrar and transfer agent

Insurance Company

Company’s legal counsel

Issuer, Trustee

Creditor

Positive Accounts Receivable Confirmation

Positive Accounts Receivable Confirmation

Max A. Cruz & Co., CPAsAyala Avenue, Makati

The balance due from us of P14,324 as of December 31, 2013 is correct except as noted below.

_________________

Aquino Products, Inc,

Negative Accounts Receivable Confirmation

Accounts Payable Confirmation

Representation Letter for Accounts Receivable

Representation Letter for Inventory

Evidences About Accounting Estimates

Examples of Accounting Estimates:

1. Allowances to reduce inventory and accounts receivable to their estimated realizable value.

2. Provisions to aalovate the cost of fixed assets over their estimated useful lives

3. Accrued revenue

4. Deferred tax

5. Provision for a loss from a lawsuit

6. Losses on construction contracts in progress

7. Provision to meet warranty claims

Audit Procedures

Review and test the process used by management to develop the estimate

Use an independent estimate for comparison with that prepared by management

Review subsequent events which confirm the estimate made

Reviewing and Testing the Process Used by Management

1. Evaluation of the data and consideration of assumptions on which the estimate is based

2. Testing of the calculations involved in the estimate

3. Comparison, when possible, of estimates made for prior periods with actual results of those periods

4. Consideration of management’s approval procedures

Evidence for Related Party Transactions

Related parties – refers to the client entity and any other party with which the client may deal where one party has the ability to influence the other to the extent that one party to the transaction may not pursue its own separate interests. Examples:

Officers, directors, principal owners, affiliated companies such as subsidiaries.

Common methods of identifying related parties: Making inquiries of management

Reviewing SEC filings, stockholders’ listings, and conflict-of-interest statements obtained by the client from its executives

Primary concern of auditors: Material related party transactions are adequately disclosed in the clients’ financial

statements or the related notes.

Disclosure of related party transactions include: The nature of the relationship

A description of the transactions, including peso amounts

Amounts due to and from related parties, together with terms and manner of settlement