A4 Audit Evidence PT 2 Flashcards
In a purchase transaction, which depts are responsible for preparing the:
- PO
- Receiving Report
- Recording the payable
- Approving the invoice
- Signing the check
- Mailing the check
- Purchasing dept
- Receiving dept
3 & 4. AP Dept records and approves
5 & 6. Treasurer’s department - signs and mails the checks
What document should be compared before an invoice is approved for payment, and why?
PO, receiving report, and vendor invoice should be compared before an invoice is approved for payment.
This is to ensure that the company does not pay for goods that were not ordered.
What are some common audit procedures related to the expenditure cycle?
- Performing a search for unrecorded liabilities (completeness)
- A/P confirmation (existence)
- Examination of purchases before and after YE for recording in the proper period (cutoff)
When might AP confirmation be used and to whom would they be sent?
- I/C is weak
- There are disputed amounts
- Monthly vendor statements are not available
They would be stent to vendors with small or zero balance, bc errors often involve unrecorded liabilities.
Note: Confirmation of recorded AP will not provide evidence regarding unrecorded liabilities, but confirmations sent to vendors with zero (or small) balances might provide such evidence.
Define Lapping
Delaying the recording of cash receipts to conceal the theft of cash.
Define Kiting
And what is a auditing procedure that would detect Kiting?
Overstatement of bank balances by transferring cash between banks and reporting the amount in both bank balances simultaneously.
The auditor may detect kiting by reviewing each transfer on the bank transfer schedule. The auditor is looking for a disbursement date per books after year-end and a receipt date before year-end.
What are the primary audit procedures used to test the existence, completeness, and valuation of cash?
- Standard bank confirmation sent to all bank with which the client has done business with during the year
- Testing of the year-end bank reconciliation.
What are five common audit procedures related to the inventory cycle?
Audit procedures related to inventory might include:
- Observing the physical inventory control
- performing test counts and tracing into the inventory report
- Performing cutoff testing of purchasing and sales
- Verifying appropriate presentation and disclosure.
- Inquiring about obsolete or damaged goods.
What are SIX common audit procedures related to the investment cycle?
Audit procedures related to the investment cycle might include:
- Confirmation of securities held and unsettled transactions (existence)
- Physical inspection and count of securities (existence)
- Evaluation of presentation and disclosure in the F/S
- Recomputation of gains, losses, amortization, dividend income, and interest income (valuation)
- Review of the minutes of B.O.D meetings
- Inquiry of management (supplemented by representation letter) regarding intent and ability to hold versus sell securities (classification)
What are 4 audit procedures related to the PPE cycle?
- Vouching additions and reviewing retirements (existence)
- Reviewing r&m expense (completeness and classification)
- Performing cutoff tests (cutoff)
- Recalc depreciation and G&L on disposals (valuation)
What functions should be S.O.D related to payroll and personnel?
ARC
Authorization (HR, Supervisory staff, timekeeping and cost acctg)
Recording keeping (Payroll dept)
Custody of assets (treasurer)
List six common audit procedures for payroll?
- Evaluate S.O.D
- Observe payroll distribution
- Test Direct deposits transfers and underlying employee authorization
- Vouch time on payroll summaries to time cards and approved time reports
- Compare total recorded payroll with total payroll checks issued
- Test extension and footing of payroll
Describe the procedure performed when an auditor is searching for unrecorded accounts payable?
The auditor should select cash disbursements made subsequent to year-end and examine supporting documents (e.g. receiving reports, vendor invoices, ect.)
The auditor is looking for items that should have been recorded at balance sheet date, but were not.
Note: Cash disbursements made subsequent to YE may be identified by reviewing the cash disbursements journal, subsequent bank statements, or the voucher register.
