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This addresses tests of acquisitions and cash disbursements

Evaluate the following statement by an auditor concerning tests of acquisitions and cash disbursements:

In selecting the acquisitions and cash disbursements sample for testing, the best approach is to select a random month and test every transaction for the period. Using this approach enables me to thoroughly understand internal controls because I have examined everything that happened during the period. As a part of the monthly test, I also test the beginning and ending bank reconciliations. At the completion of these tests I feel I can evaluate the effectiveness of internal control.

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Testing every single transaction defeats the purpose of random testing. It is too time-consuming and not realistic on an actual audit to test every transaction. The auditor will take into account the account being tested and then determines a population, which never includes every single transaction in the test. The population is then tested in the ...

Solution Summary

The solution explains the following comment:

In selecting the acquisitions and cash disbursements sample for testing, the best approach is to select a random month and test every transaction for the period. Using this approach enables me to thoroughly understand internal controls because I have examined everything that happened during the period. As a part of the monthly test, I also test the beginning and ending bank reconciliations. At the completion of these tests I feel I can evaluate the effectiveness of internal control.

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