A7 Misstatements & Internal Control Deficiencies Flashcards
Misstatements
These are inaccuracies or omissions in the FS due to fraud or error.
Corrected Misstatements
These are errors identified during the audit that the entity amended.
Unrecorded Misstatements
These are errors that were identified but not corrected by mgmt.
Evaluating Misstatements
The auditor considers the impact of both prior year and current year uncorrected misstatements, In terms of their effect on both periods. If identified misstatements in the current year would have a material impact on the prior year FS, the auditor must determine if the prior year opinion needs to be amended.
Clearly Trivial
Means that the items are inconsequential both individually & in aggregate. A summary is complied of all misstatements and presented to mgmt for consideration of effects
Quantitative Evaluation
If during a quantitative evaluation the aggregate misstatements accumulated exceed the overall materiality, this could result in a modified opinion. Qualitative considerations may cause an otherwise immaterial misstatement to be deemed material.
Identified Misstatements
When the auditor identifies misstatements, they must evaluate the type and cause of the misstatements found to determine if the assessment of CR is appropriate. The frequency, effect, & FS implications are considered.
Corrected Misstatements
Misstatements can be corrected using adjusting journal entries which can also impact any account that appears on the FS. Overstated balances will need its natural balance decreased to correct it. Understated accounts will need its natural balanced increased to correct.
FOB Shipping
Freight on Board Shipping Point details items that are the buyer’s. As soon as the items have been placed on the transportation medium (truck, boat, plane) it belongs to the buyer and they make a journal entry for it.
FOB Destination
Freight on Board Destination details items have to be at its destination for journal entries to record. Meaning it belongs to the seller until it lands at the front door of the buyer.
Perpetual Inventory System
Inventory & Sales are updated every time a sale occurs. The seller records two journal entries , one for the sale & the other for relief of inventory.
Periodic Inventory System
Sales are recorded after every sale is made. The seller records one journal entry for the sale of inventory and that inventory is then adjusted at the end of the period through a periodic count.
COGS = Beg Inventory + Purchases - Ending Inventory
Consignment
The auditor must determine if the client is the consignor of the consignee.
If consignee, the inventory should be excluded from the clients FS
If consignor, the inventory should be included in their FS.
