2 Flashcards
SSARS’s review engagement
Detailed tests such as testing a process used by mgmt to determine the balance, are not performed in a review engagement.
IC Questionnaire
read the question carefully.
questionnaire for note payable will have a different answer than that for disbursements.
For cash disbursements a questionnaire would ask a question about authorized signatures on checks.
For notes payable there would be a question asking are direct borrowings on notes payable authorized by BOD.
successor auditor inquires of the predecessor auditor
- facts that might bear on the integrity of mgmt
- disagreements w/ mgmt as to acctg principles, auditing procedures, or other significant matters
- the predecessor’s understandings of the reasons for the change of auditors.
testing completeness
- no omisions
- from detail to records.
Ex: reports of prenumbered shipping doc that have NOT been recorded in the sales journal
identifying related party transctions
- read minutes of BOD meeting
2. review confirmations of loan receivable and payable for indications of guarantees
accuracy, valuation, or allocation
testing credit approval helps assure that goods are shipped to customer who are likely able to pay
assure that all billed sales are correctly posted to the AR ledger.
test Daily sales summaries are compared to daily posting to the AR ledger
because the daily sales summary will include all “billed” sales for a particular day. Comparing this summary to the postings to the AR ledger will provide evidence on whether billed sales are correctly posted.
In performing tests of controls the auditor will normally find that
the rate of deviations in the sample exceeds the rate of error in the accounting records.
The existence of a deviation from a control activity may or may not that an error exists in the accounting records. An example: an invoice which has not been footed to test mathematical accuracy may still be correctly totaled and properly recorded in the acctg records.
letter of audit inquiry will be
- sent to a lawyer who was engaged by the client during the yr aand soon thereafter resigned
- a source of corroboration of the info orginally obained from the mgmt.
- Will seek info on claims, litigation, assessments, and unasserted claims, as well as pending or threatened litigation.
accounting estimates that could be material to the f/s
Review the lawyer’s letters for info about litigation.
If the auditor is concerned about identifying all material accounting estimates, the auditor is seeking to discover unrecorded estimates. The auditor is most likely to review the lawyer’s letter for information about litigation. Litigation losses is an area that commonly requires estimates and one in which estimates could be material to the f/s.
It is also an area that falls outside the normal financial reporting process, and thus is more likely to be missed.
to establish correctness w/AP cutoff, an auditor will most likely
coordinate cutoff tests w/physical inventory observation.
The auditor seeks to determine that both sides of the purchase transaction, inventory acquisition, and AP, are treated in the proper period. Payable should exist for items received before year end and for other goods for which title has passed.
a decrease in the number of misstmts in a class of transactions that an auditor could tolerate would cause the auditor to
perform the planned auditing procedures closer to the BS date.
When the level of tolerable misstatements decreases, the auditor will have to increase substantive testing to ensure that all material misstatements are detected. Performing the planned auditing procedures closer to the bs date increases the effectiveness of substantive procedures & thus increases substantive testing.
Utility Programs
is a standard routine for performing commonly required processing such as sorting, merging, editing, and mathematical routines.
