A4 Performing Further Procedures, Forming Conclusions, and Communications Flashcards
Which departments are responsible for preparing the sales order, approving the sales order, preparing the bill of lading, and preparing the invoice?
The Sales department: prepares the sales order
The Credit department approves the sales order
The shipping department prepares the bill of lading
The billing department prepares the invoice
Which department should approve write-offs of uncollectible accounts?
The treasurer department
A listing of cash receipts should be sent to which three departments?
The cashier, accounts receivable, and general accounting departments
What assertions are audited in a revenue cycle?
Completeness, existence, cutoff, and valuation
How to audit the completeness assertion for the revenue cycle?
Trace a sample of shipping documents to sales invoices and the sales journal
How to audit the existence assertion for the revenue cycle?
Vouch a sample of sales transactions from the sales journal to the shipping documents and sending confirmations of a sample of accounts receivable
How to audit the cutoff assertion for the revenue cycle?
Examine sales transactions from shortly before and after year-end for recording in the proper period
How to audit the valuation assertion for the revenue cycle?
Testing of the allowance for uncollectible accounts
What is a positive confirmation?
Customer is requested to return confirmation to the auditor
When to do a positive confirmation?
Should be used when: accounts are large, errors are expected, or items are disputed`
What is a negative confirmation?
Customer is requested to reply only if amount stated by auditor is incorrect
When to do a negative confirmation?
Should be used when: combined assessed level of inherent and control risk is low, a large number of small balances are being confirmed, and recipients are not expected to disregard the confirmations
What is a blank confirmation?
A positive confirmation that does not include the balance, instead requesting the recipient to provide this information
When to do a blank confirmation?
Blank confirmations provide greater assurance but may result in lower response rates
For the revenue cycle, what three documents need to be compared to assure that all shipments were based on valid customer orders and were properly billed
Shipping documents
Sales Orders
Invoices
What two internal controls functions can be consolidated in the revenue cycle?
Billing and Accoutning
Who receives actual receipts and prepares the bank deposit?
Cashier
Who enter receipts into the accounts receivable subsidiary records?
Accounts receivable department
Who enter receipts into the accounts receivable control account?
Accounting department
Nonresponses should be followed up with what?
second and even third confirmation requests if necessary
When confirmation responses are not received, the auditor should
perform alternative procedures such as inspecting shipping documents or reviewing subsequent cash receipts
confirmation responses received electronically should be verified by
calling the sender, the sender should also be requested to mail the original confirmation directly to the auditor
confirmations generally provide evidence regarding what two assertions?
existence and rights and obligations
What makes up the revenue cycle?
sales revenues, receivables, and cash receipts
What procedures relate to the existence and occurrence assertion?
observation, inspection and examination, and vouching
What procedures relate to the valuation, allocation, and accuracy assertion?
review of subsequent events, and independent calculations/estimates
What procedures relate to the rights and obligations assertion?
Confirmation, Inspection and Examination, Review of subsequent events
What procedures relate to the understandability and classification assertion?
inquiry and review of subsequent events
what procedures relate to the cutoff assertion?
cutoff procedures and inspection/examination
What procedures relate to the completeness assertion?
tracing, review of subsequent events
Confirmation of AR is a required generally accepted auditing procedure that must be performed unless
1) receivables are immaterial to total assets; 2) confirmation would be ineffective, or 3) inherent and control risks are very low
What are the departments in the sales flowchart?
Sales (authorization) Credit (authorization) Treasurer (authorization) Shipping (custody) Billing (record keeping) Accounts Receivable (record keeping) * Billing and Accounts Receivable can be consolidated
What are the departments in the collections flowchart?
Mailroom (custody)
Cashier (custody)
Accounts Receivable (record keeping)
Accounting (record keeping)
