AUD 4 - Performing Further Procedures, Forming Conclusions, and Communications

Question 1

Difference between Tracing and Vouching?

Answer 1

Tracing

• More detailed to higher level
• Shipping doc -> Invoice ->Sales Journal

Vouching
- Sales Journal -> Invoice -> Shipping Doc

Question 2

Revenue Cycle

What are the segregation of duties under strong internal control for SALES

Answer 2

Sales

1) Prep sales order
- serially numbered sales order is prepared and sent to credit dep.
2) Credit Approval
- Determines whether customer may receive goods on credit. If yes, a copy is sent to shipping/billing/accounting
3) Shipment
- prepare serially number bill of lading and send copy to costumer. Goods shipped and receivable is CREATED based on shipping invoice.
4) Billing
- prepare serially numbered sales invoice and send to customer
- Match - shipping, order, and invoice
5) Accounting
- enter into sales journal and receivable is recorded

Question 3

Revenue Cycle

What are the segregation of duties under strong internal control for Accounts Receivable

Answer 3

AR

1) Sales
- receivable is recorded in GL
2) Collection of Cash Receipts
- Payment is received, the receivable is eliminated
3) Uncollectible Receivable
- aging schedule is prepared and sent to credit.

Question 4

When auditor believes there is substantial doubt to continue as a going concern.

What are mitigating factors?

Answer 4

• The postponement of expenditures (R&D)
• Plans to dispose of assets
• Plans to borrow money to restructure debt
• Plans to increase equity ownership (sell stock)