A4 Flashcards
Sales transaction process
Sales department receives purchase order and sends it to credit department
Credit department approves sales order and sends to shipping department (also billing and accounting)
Shipping department prepares bill of lading and sends goods to customer.
Billing department prepares invoice and sends to accounting department.
Accounting department enters sale into journal and records receivable
Cash collection process
Mailroom/custody employee receives cash and distributes cash receipt copies to cashier, (remits to) A/R department, and accounting department.
Cashier receives the receipts, prepares bank deposit, and submits check to bank and deposit summary to A/R department.
A/R department matches remittance and deposit and records to cash receipts journal.
Accounting matches mailroom receipt and cash receipts JE, and updates General ledger.
Procedures to test Completeness of Accounts Payable
Agree A/P listing to general ledger.
Obtain a sample of vendor statements and agree them to vendor accounts.
Select cash disbursements after year-end and trace to supporting documentation
Examine open vouchers, receiving reports, and vendor’s invoices to see if they were recorded
Procedures to test Valuation, Allocation, and Accuracy of Accounts Payable
Foot A/P listing and agree listing to general ledger.
Obtain a sample of vendor statements and agree them to vendor accounts.
When internal control is weak, or there are disputed amounts, send out A/P confirmations
Procedures to test Valuation of Inventory
Test mathematical accuracy of inventory report and reconcile it to general ledger inventory accounts
Inquire/scan perpetual records about obsolete or damaged goods
Examine vendor invoices, direct labor rates, overhead rates, standard cost variances
Procedures to test Completeness of PP&E
Reviewing repair and maintenance expense
Payroll segregation of duties
Authorization: human resources, supervisors, timekeeping, cost accounting
Recording: Payroll department staff
Custody: treasurer
Procedures to test Valuation of Payroll
Compare total recorded payroll with total payroll checks issued
Verify pay rates and payroll deductions with employee records
Recalculate gross and net pay
Compare payroll costs with standards and budgets
Recompute paychecks for accuracy
Primary audit procedures to test Cash assertions
Send standard bank confirmations to all banks associated with client
Testing of the year-end bank reconciliation
Audit procedures to test Existence of Investments
Confirmations of securities held
Physical inspection and count of securities
Audit procedures to test Valuation of Investments
Recomputation of gains, losses, amortization, dividend income, interest income
Audit procedures to test Completeness of Debt
Review board minutes for evidence of new debt
Obtain new debt agreements and trace new debt contracts to financial statements.
Obtain listing of all debt and trace to general ledger
Audit procedures related to ligation/claims
Iquire of management about unrecorded contingencies
Review IRS reports and tax returns for claims
Review minutes of board and stockholder meetings
Obtain a letter from client’s attorney
Audit procedures to test management’s estimates
Review and test procedures used by management to develop estimate
Develop an independent estimate of the item for comparative purposes
Review subsequent events and transactions that corrobate the estimate value.
Focus of assumptions used to evaluate reasonableness of an accounting estimate
Significant to the estimate
Sensitive to the variations
Deviations from historical patterns
Subjective and susceptible to misstatement or management bias
