AUD 4 Flashcards
Which assertion has an objective to validity?
Existance
Which assertion has an objective that everything is recorded?
Completeness
Which assertion has an objective for a correct amount?
Valuation, allocation, accuracy
Which assertion has an objective for the proper legal right
Rights and obligations
Which assertion has an objective for correct classification?
Presentation
When should you perform negative confirmations?
Low risk, small balances accounts
What procedure would make a client more likely to confirm a balance?
Include a list of invoices that make up the balance. Confirm individual invoices.
What steps should you take if the 3rd party doesn’t give you a response to your confirmation?
- Send a second confirmation
- Ask client to reach out to gain communication with them
- perform additional procedures.
What should the auditor do when a confirmation come in from unouwn source?
Verifiy the identification of the sender.
What procedures should you perform for the completeness assertion?
- Tracing
- Analytical review
- Observation
What procedures should you perform for the valuation, allocation and accuracy assertion?
- Inspection
- Footing
- Independent recalculation
- Reconciliation
What procedures should you perform for the existance and occurence assertion?
- Confirmation
- Observation, inspection, and examination
- Vouching
What procedures should you perform for the rights and obligations assertion?
- Inspection
- Confirmation
What procedures should you perform for the Presentation and classification assertion?
- Inspection
- Review
- Inquiry of management
What is AP responsible for?
- Match of PO, Receiver, and invoice
What are procedures that the treasurer should do?
- Mail the checks he signs
- Voucher needs to be stamped paid or cancels the voucher packet, so it cannot be used again
What procedure will find unrecorded liabilities?
Vouch cash disbursements after the BS date, compare to receiving reports
What are procedures that purchasing should do?
- Issue prenumbered POs
- Contact with Vendors
- Receive requisition
- Send accounting debit memos for returns
What are procedures that requisitioner should do?
- Receive goods
- Get approval
- Send copy to purchasing
What is kiting?
Depositing check in 2 banks - Detected by bank transfer schedule
Auditor should look at bank tfr schedule dates
What is lapping?
Employee withholds funds for personal use by applying subsequent receipts to cover the prior funds
Auditor should compare depost slips to AR credits
How do you test the completeness assertion for inventory?
- Random selection traced to inventory listing
- Inventory tag to tag listing
How do you test the valuation allocation and accuracy assertion for inventory?
- Test mathmatical accuracy
- Inquire about obsolete and damaged goods
- Scan moving goods
- Turnover ratio
How do you test the existance assertion for inventory?
- Inventory listing to actual source
How do you test the completeness assertion for investments?
Source (statement from custodian) -> records
Search for unrecorded purchases
Procedure: Analytical procedure for reasonableness of dividends/interests
How do you test the Valuation and allocation assertion for investments?
Footing totals
YE Fair value, compare stock price to yahoo.com
Procedure: Recalculate for FV or Impairment
How do you test the Existence and occurrence assertion for investments?
Procedures:
Confirmations to custodian
Examine physical securities
How do you test the rights and obligation assertion for investments?
Confirmation
What are examples of qualitative misstatements?
- Turn loss into a profit
- Effects loan covenants
- Increases management compensation
What should the auditor consider for misstatements during the audit?
- Frequency of the misstatement
- Areas in effect
- FS implications
What should be included in a management representation letter? (10 items)
- Financial statements
Responsible for FSs design, implementation fair
presentation, controls relevant to preparing - Completeness of information
- Responsible for design and implementation to prevent fraud + disclosure of any fraud
- Uncorrected misstatements are immaterial
- Litigation
- Estimates
- Laws and regulations
- Related parties
- Subsequent events
- Additional representations - New principals, impairments, obsolete, etc.
What is the auditor’s responsibility for finding deficiencies?
Auditor does not need to search for deficiencies, but should report them if found
How and to who should the auditor communicate significant deficiencies and material weaknesses to?
Management and TCWG within 60 days of the report release
What should be included in a communication to management and TCWG letter?
- Definition of term material weakness
2, Description of significant deficiencies (Potential effects) - Sufficient information for TCWG to understand
- A restriction regarding the communication with management
What strategies most likely could improve the response rate of the confirmation of accounts receivable?
Including a list of items or invoices that constitute the account balance.
Which of the following actions should an auditor take when receiving a confirmation via electronic communication with the client?
accept confirmation and verify source
Revenue Cycle:
What procedures are included in the completeness assertion?
What document are you looking for in the tracing procedure?
a. Tracing - shipping docs (Bill of lading) to sales journal (Invoices) - evidence that shipments were invoiced
b. Analytical review
c. Observation
Revenue Cycle:
What procedures are included in the Cutoff assertion?
a. Cutoff procedures - A sales cut-off test is used to detect unrecorded sales (shipments where no invoice has been generated) or sales allocated to the wrong period (January sales included in December by “holding the books open”).d
Revenue Cycle:
What procedures are included in the Existance and occurance assertion?
a. Confirmation - AR to customers
b. Observation, inspection, examination
c. Vouching
Revenue Cycle:
What procedures are included in the Valuation, allocation, accuracy assertion?
a. Inspection
b. Footing
c. Recalculation - evaluating the adequacy of the allowance for doubtful accounts
d. Reconciliation
Revenue Cycle:
What procedures are included in the Rights and obligation assertion?
a. Inspection
b. Confirmation
Revenue Cycle:
What procedures are included in the Understandability of presentation and classification assertion?
a. Inspection
b. Review
c. Inquiry of management
What is the mailroom’s procedures?
- Sperate checks and remittance advices.
- Stamp endorsement on checks.
- Prepare prenumbered list of checks received.
- Forward remittance to A/R (Matches to check deposit and remittance)
- Forward prelisting to accounting/AR, and cashier ( prepares deposit with check received and adds to prenumbered cash summary list).
How are segregation of duties generally tested?
Inquiry and observation of activities
What are safeguards to protect marketable securities?
- Custodian has no direct contact with employees who have recordkeeping
- The GL and the deposit box are reconciled periodically
- Requires 2 signatures to access
