[Anonymous]

I am having a lot of trouble with the Becker hw questions in Audit Section 4: Audit Procedures by Transaction Cycle. There is one question in particular that is really frustrating me and I was wondering if someone could help me out with it. Here it is:

To gain assurance that all inventory items in a client’s inventory listing schedule are valid, an auditor would most likely trace:

a) Inventory tags noted during the auditor’s observation to items listed in the inventory-listing schedule.

b) Inventory tags noted during the auditor’s observation to items listed in receiving reports and vendors’ invoices.

c) Items listed in the inventory-listing schedule to inventory tags and the auditor’s recorded count sheets.

d) Items listed in receiving reports and vendors’ invoices to the inventory-listing schedule.

I saw the word “trace” and assumed that the auditor is testing for completeness. This would mean that you should start with supporting documents and trace to the accounting records. I thought that choice “a” followed the completeness procedure correctly. The explanation states that choice “a” does verify the completeness of the schedule but that is not the correct answer. Choice “c” was the correct answer and the explanation states that answer “c” verifies the validity (existence) of the items.

This question especially frustrated me b/c the explanation confirmed that the answer I chose was a correct procedure to search for completeness but apparently I was searching for the wrong answer the whole time. In the Becker lecture, it was stated repeatedly that tracing is searching for completeness and that vouching is searching for existence. Am I placing too much emphasis on the use of the word “trace?”

I was also thinking that maybe I was overlooking the word “valid.” Does searching for validity imply that you are testing for existence?

If someone could help me out with this question I would REALLY appreciate it. It is really frustrating me especially b/c I thought that I was approaching the question in the correct way and b/c this same approach has worked for me on other similar questions.

[lbi18]

@CE1435

Yeah, you definitely don't want to rely on those words because as you can tell, the CPA exam can use trace for completeness testing or existence testing. Read the question and think about what it is asking you, disregarding words like trace.

I fell for this trap at first too, but you need to just think about what the question is asking you logically. This question asks you how to determine if all inventory in the listing is valid (i.e. how to determine if all inventory in the listing actually EXISTS). It's a pain, I know, but you will understand it eventually once you get the hang of it.

FAR - 85
AUD - 99
REG - 85
BEC - 10/4/13 (Waiting)

Using Becker Self-Study

[gobias]

I fault becker for creating this confusion. When you see a question that uses the words trace/vouch, you have to read it carefully because the examiners use them interchangeably even though becker gives them strict definitions.

In this question, validity does imply testing existence as you said.

F - 86
R - 90
A - 97
B - 91

[Anonymous]

Thanks so much for helping me out with that Gobias and Ibi18. That's kind of what of was thinking and having others confirm my thought process really helps. I really appreciate it.

[jpat1980]

One way I over came this is that you “vouch” assets/revenues -risk of overstatement (working top-down from the financial statement to the source document/transaction/event, testing existence)

You “test” liabilities/expenses – risk of understatement (working bottom-up from the source document/transaction/event to the financial statement, testing completeness)

If you know your acronyms, you can sometimes narrow your answer choices:

Account balance: CVER

Transactions: COVEU

Disclosures: CVRU

Hope my reasoning makes sense…

AUD-68,74,88
REG-81
BEC-75
FAR-71,79
(Primary: Becker | Supplemental: Wiley MCQ's, Ninja Notes)

CFP - passed(3/2013)
(KIER, College for Financial Planning-cffp.edu, Jeff Rattiner Books and Notes)

[Author]

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