9/23 Class Flashcards by Andrew Mitchell

Exam

review online 50-60 questions look at the multiple choice problems from class, study essential terms and review questions at the end of the chapter

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introduction to audit preparation

on it

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cycles

receipts
sales and collections
payroll personell cycle
inventory and warehousing cycle
capital acquisition and repayment

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managements responsibility

financial statements
internal controls
SOX - CEO & CFO Certification
Report of Management

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auditors responsibilities

perform audit of f/s(GAAS or PCAOB)
   material misstatements
   reasonable assurance
material weaknesses in internal control
Fraud
Misappropriation of assets
illegal acts

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cycles

sales & collection
acquisition & payment
payroll & presentation
inventory & warehousing
capital acquisition & repayment

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acquisition & payment cycle

balance sheet
   cash 
   current assets & liab
   fixed assets & accum depr
Income statement
   sales, general & admin exp
   inc taxes
   gains on sales of assets

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payroll & personnel cycle

balance sheet
   cash
   accrued payroll & related taxes
inc stmt
   salaries & commissions
   payroll taxes

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Inventory & warehousing cycles

balance sheet
inventories & related allowances
Income statement
COGS

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Capital Acquisition & Repayment Cycle

Balance Sheet
   Cash 
   NP
   Long term liab
   accrued interest
   dividends payable
   stockholders equity
Inc stmt
   interest exp

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selecting audit objectives

balance sheet(ending balances)
   test debit balances for overstatement
   test credit balances for understatement
inc statement
   test debits for understatement
   test credits for overstatement

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Sales & Collection Cycle

Balance Sheet
   Cash 
   A/R
   Allowance for bad debts
Inc stmt
   sales 
   returns & allow
   bad debt exp

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financial statement assertions

existence or occurrence
completeness
pg 156

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existence or occurance

is it really there? Did it happen?

Direction FS - GL - Source Documents

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completeness

did all items get recorded?

are all liabilities presented?

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valuation - gross

is it really valued correctly?

Historical cost principle (GAAP)

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valuation - net

is it really worth what they say it is?
NRV, LCM
Impaired?
collectability
allowance - accounting est
   bad debts 
   inventory obsolescence

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valuation accuracy

are quantities accurate?
are prices or costs accurate?
are extended values correct?
footing errors?

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cutoff

are all items for the period end included?
are there out of period items included?
did the records cut off at 12:00 midnight exactly on Dec 31, 2010?

rights and obligations

does the company have the rights to the assets?

Does the company have an obligation for a liability not presented?

rights & obligations

is there an unrecorded liability ?
   commitment
   agreement/arrangement
   guarantee
The company claims the rights to a whole warehouse of inventory.

presentation & disclosure

adequacy of disclosure
per GAAP
Classification of accounts

Audit Decisions

procedures to use
sample size
method of selection from population
timing of procedures

sufficient, appropriate evidential matter

sufficiency - quantity
appropriate - quality
   believable
   independent
   reliable
   relevant
inverse relationship

appropriateness affected by

``` relevance related to audit objective-direction reliability independent sources effective internal control direct evidence obtained individual qualifications objectivity timeliness ```

types of audit evidence

``` physical examination confirmation inspection analytic procedures inquiries of client reperformance/recalcualtion observation ```

types of evidence

``` direct physical examination observe inventory procedures examine assets Confirmation third party representatives confirmation attorney letters ```

information confirmed pg 201/181

know it

3. inspection

``` vouching - gl to client docs existence tracing - source docs to f/s completeness within company - customer invoice outside company - vendor invoice electronic documents - paperless be careful - faxes, photo copies, drafts ```

4. analytical procedures

data interrelationships

5. inquiry and written client representations

helps get things started

6. Re-performance/Recalculation

yes

7. Observation

learn them

audit procedures/audit program

``` materiality nature of procedures timing of procedures extent of procedures cost benefit relationship most expensive?physical , confirmation least expensive? ```

analytical procedures

``` required in the planning and performing of the audit plausible relationships financial and non-financial data nature of analytical procedures develop expectation perform procedures expectation vs actual investigate assess explanation conclude or dig further ```

types of procedures

``` industry data prior period data client expectations auditor expectations non-financial data purpose? ```

timing

during planning - required substantive testing overall concluding review - required never used to test internal controls

extent of analytical procedures

``` depends on effectiveness precision predictability technique reliability of data ```

evidence on accounting estimates

``` ex: allowances, contingencies review management rationale auditor estimate compare inquiry experts or independent parties corroborating evidence subsequent events conclude ```

evidence on related party transactions

``` related party - any affiliates officer directors principal owners/shareholders immediate families of above affiliates review significant transactions disclose consolidate? ```

working papers

``` assigning and coordinating supervising and review supporting GAAS Stand alone Subsequent audit value Ownership Access ```

current file

planning overall audit program internal control documentation of understanding engagement letters, times budgets, correspondence working trial balance - by lead schedules client financial statements (cross referenced) AJE's, RJE's, Passed AJE's Management representation letter

content of working papers

``` current file audit programs for each account procedures/plan documentation conclusions permanent file articles of incorporation bylaws contracts other agreements other year to year data ```

prep of working papers

``` headings PBC Date/Signature of preparer and reviewer cross ref work papers tickmarks and legend explanation of procedures conclusions ```

review of working papers

``` reviewers senior manager engagement partner concurring review(Impartial) Technical Reviewer Review Notes ```